Rates fall, demand healthy in Spanish debt auction
A man begs for alms on a street at the old city, in Pamplona, northern Spain, Wednesday Oct. 17, 2012. Reading on the banner, '' Is very hard but I have to beg to feed my three children. Thanks." (AP / Alvaro Barrientos)
Published Thursday, October 18, 2012 7:41AM EDT
Last Updated Thursday, October 18, 2012 7:42AM EDT
MADRID, Spain - Spain raised C4.6 billion ($6 billion) at a sharply lower cost Thursday amid growing expectations that the cash-strapped country will soon make a request for international help to deal with its finances.
The Treasury sold C1.51 billion in 10-year bonds at an average interest rate of 5.46 per cent, down from 5.66 per cent in the last such auction Sept. 20. It also sold C1.46 billion in five-year bonds at 3.98 per cent, down from 4.60 per cent, and C1.64 billion worth of three-year bonds at 3.23 per cent, which was below last time's 3.68 per cent.
Demand was more than twice the amount offered.
Spain says it will soon decide whether to look to tap a European Central Bank bond-buying program largely designed to keep a lid on its borrowing costs.
As well as borrowing too much, the country has nearly 25 per cent unemployment and is in its second recession in three years. Its regional governments are also heavily in debt while many of its banks have incurred heavy losses after a property sector crash in 2008.
On Thursday, the Bank of Spain said the amount of loans in Spanish banks that are at risk of not being paid rose to a record C179 billion in August, representing 10.51 per cent of the loan total. In July, the rate was 9.86 per cent.
The 16 other countries that use the euro have agreed to provide Spain with up to C100 billion to help support its troubled banks. Spain estimates the banks will need only some C40 billion.
Spain is one of the key focal points in Europe's financial crisis given that, as the fourth largest economy in the eurozone, it would be hugely expensive to rescue.
The government has introduced austerity measures and financial and labour reforms in a bid to convince investors it is getting a grip on its finances. The measures have led to many strikes and protests. Labour unions are expected to announce the country's second general strike in a year on Friday with Spanish media saying the date will likely be Nov. 14.