Spain paid the second highest yield on short-term debt since the birth of the euro at an auction on Tuesday, reflecting a growing belief that the country will need a full sovereign bailout that the euro zone can barely afford.
Spain’s increasingly desperate struggle to put its finances right has seen its borrowing costs soar to levels that are not sustainable indefinitely. Italy, commonly regarded as too big to bail out, has been dragged along in its wake.
The Spanish Treasury raised €3.0 billion ($3.7 billion) of 3-, and 6-month T-bills, meeting its target. The average yield on the 3-month bill was 2.434%, up from 2.362 in June. For the six-month paper, the yield jumped to 3.691% from 3.237% last month.
“The most important takeaway from this auction is that Spain was able get all its debt out the door,” said Nicholas Spiro of Spiro Sovereign Strategies. “Still, in March, Spain was able to issue six-month debt at a yield of under 1%, now it is paying 3.7%.”
Spain had cushioned itself by securing well over half its annual debt needs in the first six months of the year when market conditions were more benign but that advantage has now evaporated. On Friday, the government said it expected the economy to remain in recession well into next year while the autonomous region of Valencia became the first to ask Madrid for aid to pay debt obligations it cannot meet.