Spain auctions $3.3BN in mid-term debt

Spain managed to beat its targets for an auction of medium-term debt, but at sharply higher interest rates, in its first bond sale since its credit rating was downgraded over fears that it may seek a bailout.

The Treasury sold €2.52 billion ($3.3 billion) in 3- and 5-year bonds Thursday. It had set a target range of €1.5 billion to €2.5 billion.

The Treasury sold €978 million in three year bonds at an average interest rate of 4 percent, up from 3.5 percent at the last such auction on April 19.

It also sold €1.54 billion in two categories of 5-year bonds. The yields were 4.75 percent and 4.96 percent, up from 4.3 percent on April 4.

In the secondary market, the yield on Spanish 10-year bonds stood at 5.82 percent, virtually unchanged from Wednesday's close.

Spain — in recession, and with a 24.4 percent jobless rate and banking sector heavily exposed to an imploded real estate market — is the focus of the latest bailout fears hounding the eurozone.

Late last week, S&P downgraded the country's credit rating by two notches from A to BBB+, citing a worsening budget deficit, worries over the banking system, and poor economic prospects.

Marc Ostwald of Monument Securities said the auction was a mixed bag: good in that Spain reached its target and the bond sale was oversubscribed. But he said it was disappointing that Spain did not sell more than €2.52 billion in the face of such high demand.

Ostwald also wrote that the average yields on the bonds auctioned Thursday were higher than those being traded on the secondary market.