Updated, 10.45

THE SPANISH GOVERNMENT has shaken off news of its downgrade by Standard & Poor’s by raising almost €5 billion on the bond markets – at significantly lower interest rates.

The Spanish treasury raised €3bn in 12-month bonds selling at an average yield of 2.15 per cent, a major improvement on the 4.05 per cent rate it paid at the last similar auction.

Another €1.87 billion was raised in the sale of 18-month bills, at an average interest rate of just under 2.5 per cent – again, down from 4.226 per cent the last time that Spain sold a similar bond.

In both cases, demand for the government debt was more than three times the amount on offer.

The result – which has seen the cost of borrowing cut in half – is very good news for Spain, which was among the four eurozone member states to have its credit rating cut by two notches by Standard & Poor’s last Friday.

Belgium has also raised almost €3 billion in its own auctions, though with mixed results: yields on a 3-month bond hit 0.429 per cent (up from 0.264 per cent last time), though 12-month bonds only pay 1.162 per cent as opposed to 2.167 per cent the last time out.

Further indications of market response to the S&P downgrade will come later today when Greece – which was not downgraded, having already been lowered to ‘junk status’ – and the European Financial Stability Facility both hold bond auctions of their own.

The EFSF auction will be of particular interest, having also been downgraded by S&P yesterday – following France in losing its AAA status.

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