Slush fund scandal pushes up Treasury’s borrowing costs

The Spanish Treasury on Thursday managed to sell more debt than it had initially planned, but was forced to pay more to do so for the first time this year in the wake of the ruling Popular Party slush fund scandal that has rocked the government of Prime Minister Mariano Rajoy.

The debt-management arm of the Economy Ministry sold 4.61 billion euros in two-, five- and 16-year bonds when it had been looking to issue as much as 4.5 billion.

It sold 1.947 billion euros in bonds maturing in 2015 at a cut-off rate of 2.889 percent, up from 2.587 percent in January. That was the highest yield for paper of this maturity since October. It issued a further 2.069 billion euros in five-year paper as the marginal yield climbed to 4.169 percent from 3.808 percent a month ago.

In the final leg of Thursday’s tender, the Treasury placed 593 million euros in bonds maturing in 2029 at 5.822 percent.

The Treasury has so far this year issued 21.993 billion euros in debt out of a planned 215-230 billion for the year.

Spain’s risk premium rose sharply on Monday after the international press had latched on to the alleged secret accounts of former PP treasurer Luis Bárcenas, first published in EL PAÍS and which allegedly show donations from companies that exceed legal limits and bonus payments in cash to party officials.

International interest

The spread between the yield on the Spanish benchmark 10-year government bond and the German equivalent opened at around 387 basis points on Thursday, but had eased to around 375 basis points by midday.

The mud thrown up by the Bárcenas case has also been a timely reminder to investors that Spain remains in recession and is likely to have missed its deficit-reduction target for last year as outstanding public debt continues to mount and the banking sector remains in throes of an extensive clean-up.