Spain’s borrowing costs fall after Moody’s credit rating upgrade

The Spanish Treasury’s borrowing costs at Tuesday’s tender of short-term paper fell after Moody’s Investors Service revised upward its sovereign credit rating for the Spain, the first upgrade since the current crisis broke in 2008.

The Economy Ministry’s debt-management arm sold 3.059 billion euros in three- and nine-month bills, slightly above its maximum target of 3 billion. It placed 887 million euros in the shorter-dated paper at a cut off rate of 0.189 percent, down from 0.350 percent at the previous tender held last month. Bids amounted to 3.327 billion euros.

It sold a further 2.172 billion euros in nine-month bills at a cut-off rate of 0.470 percent, down from 0.670 percent last month, as bids amounted to 5.192 billion euros.

“The fall in yields was very big, but that is not unusual for short-term paper, particularly bearing in mind that the yield on the 10-year bond has dropped to new record lows after the improvement in Spain’s rating by Moody’s,” Reuters quoted IG analyst Daniel Pingarrón as saying.

The yield on the three-month issue was the second lowest ever, while the yield on the nine-month bills was the lowest recorded since the Treasury started to sell paper with this maturity in January of last year.

Tuesday’s auction was the first since Moody’s last Friday eased its sovereign rating for Spain from Baa3 to Baa2, two notches above junk status, citing expectations of an improvement in the domestic economy and a reduction in the public deficit over the medium term.

The yield on the benchmark 10-year government bond was trading at 3.55 percent at early on Tuesday afternoon, with the risk premium steady at 188 basis points.