SPAIN HAS CREPT ever closer to needing international financial assistance after an auction of short-term bills saw its cost of borrowing continue to rise to levels many analysts believe are unsustainable.
The Spanish treasury this morning raised €3.04 billion – slightly above its fundraising target – through the sale, but the interest rates it paid in return for the borrowings were significantly higher than they were at the last similar auction a month ago.
Having paid 2.985 per cent for a 12-month loan last month – a level already considered too high for comfort – Spain this morning shelled out 5.074 per cent interest.
Investors demand higher rates when they believe a country is at risk of not repaying the full amount when the loan falls due – and therefore look to guarantee as high an interim return as possible.
The Spanish auction coincided with reports that the results of an audit into the health of Spain’s banks would be delayed, from late July into September – a move which may mean less immediate certainty as to the amount that Spain may have to invest in them to keep them afloat.
Greece also returned to the markets this morning in an auction of 3-month bills, paying 4.31 per cent – virtually unchanged from the 4.34 per cent it paid a month ago.
Reuters reported that the majority of Greece’s short-term bills – the only ones Greece is currently issuing – are bought up by the country’s banks, meaning the yields paid out on them do not truly reflect the level of market demand.