Spain's biggest bond sale wins them time
Published 21/09/2012 | 08:00
Embattled Spain has won breathing space from international markets with its biggest bond sale since January as prime minister Mariano Rajoy scrambles to avoid a full-scale bailout.
Madrid raised €4.8bn (£3.7bn) in the first auction of long-term bonds since the European Central Bank launched its emergency lifeboat for eurozone strugglers two weeks ago.
Spain paid 5.67% for the 10-year debt down almost one percentage point from the 6.64% it paid at a similar auction a month earlier in a sign of easing pressure from international investors. But the nation's borrowing costs still remain worryingly high. In contrast the UK sold £4.5bn of five-year gilts at a yield of 0.8%.
Mr Rajoy, who has already tapped bailout funds to prop up the nation's creaking banking system, has been stalling over a wider rescue which many experts regard as inevitable. ECB president Mario Draghi has said he will only start buying up short-term debt if the country requests a bailout and signs up to strict conditions.
RBS analyst Havinder Sian said: "The result is decent, but it doesn't follow that the market will react positively. A bad auction will push Rajoy to seek a bailout a good one means he might vacillate again."
Analysts said worsening conditions for the eurozone's private sector this month came as an "unpleasant surprise". Financial information group Markit's latest snapshot of the region's services and manufacturing sector where a score under 50 indicates contraction slipped from 46.3 to 45.9 when experts had hoped for an improvement.
The eurozone avoided a double-dip recession by the skin of its teeth in the first quarter of this year. But a fresh slump now looks inevitable.