Irish borrowing costs stay below 10% for 10-year bonds

SPAIN’S SHORT-TERM borrowing costs dropped yesterday as it sold € 2.94 billion of Treasury bills.

However, the cost of borrowing for Greece soared once more to its highest level in a month due to concerns about its upcoming € 159 billion loan package.

Ireland’s borrowing costs remained below the 10 per cent level, at 9.204 per cent for 10-year bonds.

Spain sold €805 million in three-month bills at an average yield of 1.357 per cent, its lowest since March, and raised € 2.1 billion by selling six-month bills at 2.187 per cent, compared to 2.519 per cent last month. However, the yield on its 10-year bonds rose slightly by two basis points to 4.98 per cent.

Spain was supported in its fund-raising efforts by bond purchases from the European Central Bank (ECB). On Monday the bank revealed it spent close to € 40 billion on sovereign bonds over the past two weeks to stabilise borrowing costs for peripheral states.

It said yesterday it will take €110.5 billion in deposits from euro-area banks today to neutralise the bond purchases and protect against inflation. The deposits correspond to the total amount it has spent on its bond-purchases under the securities markets programme it started in May last year.

Yesterday, the Spanish government said it would put a constitutional cap on public debt before upcoming elections in November.

“The sense of this initiative is in line with others we have announced: it implies the commitment with the need of definitive consolidation of the Economic and Monetary Union, and it represents a step toward strengthening confidence in the medium-and long-term stability in the Spanish economy,” prime minister José Luis Rodríguez Zapatero said.

He described the recent rise in the cost of borrowing for Spain before the ECB stepped in to support the market as “unjustified”.

Meanwhile, the spread between Greek and German two-year yields widened once more yesterday to a record 39.03 percentage points.

There is a lack of consensus on how Greece’s new loan package should be structured, with some countries, such as Finland, seeking collateral for the loans. Germany’s labour minister Ursula von der Leyen yesterday suggested countries needing a bailout put up gold reserves as collateral. – (Additional reporting Bloomberg/Reuters)