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Spain set for second debt auction of the week

Government plans to auction up to €2.5bn in bonds today in a key test of investor confidence.

SPAIN WILL BE in the spotlight later today when it auctions up to €2.5 billion of its bonds, in a key test of investor confidence in the government’s plans to get a handle on its debts.

Most interest will center on what interest rate the 10-year bond issue reaps.

Over the past couple of weeks, Spain has become the epicenter in Europe’s debt crisis, with investors becoming increasingly concerned over whether the new conservative government can push through its austerity and reform program at a time of recession and sky-high unemployment.

Earlier this week, the yield on Spain’s 10-year bonds spiked above 6 per cent, toward the levels that forced Greece, Ireland and Portugal, into seeking outside financial help.

The problem for the other 16 countries that use the euro, however, is that Spain’s economy is about double the size of the three bailed-out countries, meaning that it will cost much more to bail out.

“Markets are becoming increasingly worried that, in the absence of a much bigger firewall than the one which is currently available, Spain will find itself in a similar situation to Greece, only without the luxury of a bailout to fall back on,” said Michael Hewson, senior market analyst at CMC Markets.

Markets across Europe were cautiously upbeat ahead of this morning’s auction, partly because the amount Spain is trying to raise is not huge. The Stoxx 50 index of leading European shares up 0.6 per cent and Spain’s ten-year yield was down a further 0.03 percentage point to 5.78 per cent.

France is planning to raise €11 billion today but there are few market concerns over the country’s ability to finance itself.

Read: Spanish bond sale passes off with higher than expected investor interest >

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