Spain boosts bond issue with low rates

MADRID — Spain aced its first bond test of 2012 under a new right-leaning government yesterday, locking in sharply lower borrowing rates and raising far more money than first planned.

Investors flocked to the issue and the Treasury took advantage of the cheaper rates to raise about 10 billion euros ($12.7 billion) — twice the original target.

It was good news for the government of Prime Minister Mariano Rajoy, who is struggling to slash spending and rein in a public deficit that shot far above target in 2011.

In an issue of three-, four- and five-year bonds, the Treasury boosted the sale from its original target of 4.05.0 billion euros as rates fell to less than four per cent, Bank of Spain figures showed.

Investors showed strong demand for the bonds, with bids for all three issues amounting to 18.7 billion euros — well over three times the amount the Treasury first hoped to raise.

A breakdown of the sale showed Spain raised 4.272 billion euros in three-year bonds, 2.503 billion euros in four-year bonds and 3.211 billion euros in five-year bonds.

The state offered yields of between 3.384 and 3.912 per cent on the three issues, well below the punishing 4.8484.871 per cent borrowing rates it had to pay in previous comparable sales held in 2011.

Spain’s new leader said this week the overall public deficit could hit about 8.0 per cent of Gross Domestic Product in 2011, well beyond the 6.0 per cent target set by the previous Socialist government. Rajoy has vowed to stick to the 4.4-per cent goal for 2012, however, and has announced the first steps of an austerity drive expected to trim the deficit by nearly 40 billion euros. — AFP