Spain Borrowing Costs Triple In One Month, Italian Yield Firmly Above 6% Again

Tyler Durden's picture

Not much to add to Reuters summary of the overnight Spanish bill auction. The good news: the country that is not Uganda sold €3.08 billion compared to a range sought of €2-3 billion. The bad news: the price paid to sell this debt more than makes up for any optics that this was a good deal. "Spain's short-term borrowing costs nearly tripled at auction on Tuesday, underlining the country's precarious finances as it struggles against recession and juggles with a debt crisis among its newly downgraded banks. The yield paid on a 3-month bill was 2.362 percent, up from just 0.846 percent a month ago. For six-month paper, it leapt to 3.237 percent from 1.737 percent in May... Spain sold 3.08 billion euros of its short-term debt on Tuesday, slightly above its target amount, even as the Treasury paid the highest rates to sell the paper since November and met with falling demand from the country's struggling banks. The Treasury sold 1.6 billion euros of a 3-month bill, and 1.48 billion euros of a 6 month bill, which together was just above the 2-3 billion euro target set. The Treasury has overshot its sales target in recent auctions, showing it still is capable of selling its debt even if has to rely on domestic banks to do so as international investors avoid Spanish debt." Here's a hint to whoever is pretending to be in charge of Spanish finances: selling more debt than the "max" just to show you still have bond market access (i.e., debt bought by just downgraded Spanish banks) while paying ridiculous interest on this "optical success" is about the dumbest thing a broke country can do. But who are we to judge. We will leave that to the bond market. Below we show the yield on the Spanish 10 Year, which in two days has retraced the entire move tighter in the past week.

Elsewhere in Italy we get more good news:

  • ITALY APRIL SALES DECLINE 6.8% YOY, BIGGEST DROP SINCE AT LEAST JAN. 2001
  • ITALY SAID TO REVIEW DECREE TO ALLOW BANKS TO SELL BONDS TO GOV

That, and of course this:

Italy paid 4.712 percent to sell two-year paper on Tuesday, a new high since December, as investor doubts have grown about whether a European summit later this week will deliver a decisive answer to the bloc's debt crisis.

 

Pressured by rising interest payments on its 1.95 trillion euro debt and a deepening economic recession, speculation has grown that Italy is at risk for being forced to seek external assistance to continue finance its debt.

 

It sold a total of 3.9 billion euros in zero-coupon and inflation-linked bonds - near the top of its planned range - ahead of a six-month bill sale on Wednesday and a more challenging offer of five- and 10-year debt for up to 5.5 billion euros on Thursday.

 

The yield on zero-coupon bonds due in May 2014 rose sharply from the 4.04 percent level Rome paid only a month ago on the same paper. The sale was covered 1.65 times, roughly in line with May's slightly bigger auction.

Which brings us to another diagonal bond yield chart over the past three days: that of Italian bonds.