DEBT DRAMA

Spain pays euro-era record to sell government bonds

Risk premium falls to just over 500 basis points

Growing concerns among investors over Spain’s solvency were reflected at a bond auction on Thursday, which saw the Treasury pay the highest interest rates in euro-era history on medium-term paper.

Despite the high yields demanded by investors, demand outstripped supply, and the Treasury sold 2.22 billion euros in two-year bonds, above its target of 2 billion.

But the record rate means that Spain’s borrowing costs have returned to the levels of the peseta, the former national currency before the advent of the euro.

Government paper maturing in April 2014 was sold at a yield of 4.706 percent, when just three years ago it sold for less than half that rate (2.069 percent).

As for bonds maturing in 2015, Spain sold 918 million euros at a record rate of 5.510 percent, according to data released by the Bank of Spain. At the last auction of three-year bonds, held in May, investors demanded rates of 4.917 percent.

The Treasury also sold 602 million euros of bonds maturing in 2017 at a yield of 6.195 percent, another euro-era record. At the last sale of five-year bonds in May, the maximum rate was 4.982 percent.

The yield on the benchmark 10-year bond closed the day at 5.7 percent, while the risk premium fell to 507 points over the German bund. At the start of the week the spread was as high as 590 basis points.

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