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Dublin: 8 °C Wednesday 22 January, 2020

Spanish borrowing costs nearly triple in short-term auction

Spain issued some 3-month and 6-month bills this morning – but saw its rates rocket following its bailout request.

THE COST of borrowing for Spain has continued to reach new highs – with even short-term borrowing now reaching levels which many observers would consider to be unsustainable.

An auction of short-term treasury bills this morning – the first since the country formally requested a bailout to recapitalise its banking sector – raised €3.1 billion for the government, but at significant prices.

The interest rate demanded for 3-month bills was 2.36 per cent – compared to 0.85 per cent when it issued similar bonds five weeks ago.

The rate on 6-month bills, meanwhile was 3.24 per cent – up from 1.7 per cent when a similar auction was held on May 22.

By comparison, Germany would currently pay just 2.24 per cent if it wished to borrow for a 30-year basis – with shorter-term loans commanding even lower interest.

The Federal Republic would pay less than 0.1 per cent to borrow for two years – a rate which is so small that, when inflation is taken into account, investors are effectively agreeing to lose money in exchange for a firm guarantee of its return.

Read: Moody’s downgrades 28 Spanish banks over debt concerns

More: Cyprus asks for bailout from the eurozone

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About the author:

Gavan Reilly

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