Thursday, November 17, 2011

Spain 10-yr debt costs to hit new high as crisis deepens

Spain will pay its highest cost of borrowing since the creation of the euro to sell 10-year debt on Thursday as the euro zone's sovereign debt crisis intensifies.

The Treasury aims to sell between 3 billion euros ($4.1 billion) and 4 billion euros of a new 10-year benchmark bond that will take its 2011 borrowing to almost 90 percent of the targeted amount. France, whose yield premium over Germany hit a euro-era high on Tuesday on fears it may lose its top-grade AAA rating, is also due to sell 6-7 billion euros of debt.

The Spanish auction will be the last before a general election on Sunday which is widely expected to usher the centre-right People's Party (PP) into power.

With the crisis spreading to the 17-country currency's core, PP leader Mariano Rajoy will have little time to assure investors he can take control of Spain's finances and stop it becoming the fourth member of the bloc to require a bailout.

A successful Spanish T-bill auction on Tuesday and the recent rise in Spanish debt yields means the paper is likely to attract demand but the cost will be high, with an average yield of around 6.5 percent expected by analysts. The bond will carry a 5.85 percent coupon.

A 10-year yield of more than 7 percent is generally regarded as unsustainable for countries to finance their debts. more