T-bill rates rise in latest primary market auction

As Spain continued to debate the merits of a second bailout, the Treasury was obliged to offer higher rates to meet its issue target at Tuesday’s auction of short-dated paper.

The debt-management arm of the Economy Ministry sold 3.982 billion euros in three- and six-month bills, just a tad short of its maximum target of 4 billion euros. The cut-off rate for the three-month tranche climbed to 1.250 percent from 0.988 percent at last month’s auction. The marginal yield for the six-month bills rose to 2.300 percent from 2.100 percent.

Specifically, The Treasury sold 1.399 billion euros in three-month paper out of bids totaling 4.599 billion. It placed a further 2.584 billion euros in six-month bills as demand amounted to 4.739 billion euros.

The higher yields “could potentially be an indication of the growing sense of unease felt by investors over the prolonged bailout saga,” Bloomberg quoted Brian Barry, an analyst at Investec Bank in London, as saying.

This is like when you buy a house,” says the deputy PM. “It’s not the same decision to buy a shirt as it is to buy a house"

In an interview Tuesday with Spanish radio station Cadena Ser, Deputy Prime Minister Soraya Sáenz de Santamaría said the government would like to know the extent to which the European Central Bank will intervene in the secondary market before making its mind up about asking for assistance from the European Stability Mechanism (ESM) rescue fund.

The ECB has conditioned the purchasing of bonds in the secondary market to euro-zone governments making a prior request to the ESM to buy its debt in the primary market. The ECB said its bond purchasing program will be “unlimited.”

“This is like when you buy a house,” Sáenz de Santamaría said. “It’s not the same decision to buy a shirt as it is to buy a house. You think a lot about the mortgage they give you and under what conditions they grant it to you.”

Spain fears a second bailout on top of the one to recapitalize its banks could carry politically unpalatable conditions with it, among those related to the state pension system.

Sáenz de Santamaría told Cadena Ser that the government will continue to top up pensions if inflation comes in above the target rate. Brussels is believed to have asked the government to stop indexation.