Spain Pays More Than Greece to Borrow in First T-Bill Sale Since Election
Comment of the Day

November 22 2011

Commentary by David Fuller

Spain Pays More Than Greece to Borrow in First T-Bill Sale Since Election

Here is the opening from Bloomberg's report on today's auction:
Spain paid more than Greece and Portugal to sell three-month bills as the newly elected People's Party called for a European agreement to "save" the nation's debt, saying the country can't afford 7 percent interest rates.

Spain's three-month borrowing costs doubled as it sold bills at an average yield of 5.11 percent, more than twice the rate at the previous auction a month ago. The Treasury paid more than the 4.63 percent for 13-week bills sold Nov. 15 by Greece, which received a European Union-led bailout last year. Portugal paid 4.895 percent on three-month bills the following day.

Maria Dolores de Cospedal, the deputy leader of Spain's People's Party which ousted the ruling Socialists on Nov. 20, yesterday called for a euro-region accord to "save and guarantee the solvency" of Spain's 650 billion-euro ($881 billion) debt. Spain can't afford to "continue financing itself at 7 percent," she said, referring to the yield on 10-year debt that led Greece, Portugal and Ireland to seek EU aid.

Prime Minister-elect Mariano Rajoy told German Chancellor Angela Merkel in a phone call yesterday that "countries that meet their obligations and responsibilities must be helped by European institutions," Cospedal said. The European Commission yesterday said it had no knowledge of any Spanish request for aid or plans to seek it.

David Fuller's view The doubling of Spain's 3-month borrowing costs in a month is obviously worrying for prime minister-elect Mariano Rajoy. It is also ridiculous. Spain's risk of default on 3-month bill has obviously not suddenly doubled but this does show the extent to which confidence has deteriorated. Someone made a good purchase today.

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