Spanish bonds gained after the Treasury met its target at a debt sale, while French costs declined at an auction, easing concern that the countries will struggle to finance their borrowings.

The Spanish Treasury sold €2.52 billion of bonds, exceeding its maximum target. Still, Spain had to pay 4.037 per cent to sell debt for three years, up from 2.617 per cent at a March 1st sale.

The auction was the first long-term debt sale since Standard and Poor's lowered the nation's credit rating last week, leaving Spain three notches from junk status. The effect of the European Central Bank's €1 trillion three-year refinancing operation is also fading, leaving a clearer indication of demand.

The yield on Spain's existing five-year benchmark declined 7 basis points to 4.7 per cent at midday in Madrid, and the yield on the benchmark 10-year bond fell 3 basis point to 5.82 per cent. Spain also sold two five-year bonds at 4.752 per cent and 4.96 per cent.

France held its final auction before the nation chooses its next president in a final round of voting on May 6th. The Treasury sold €3.32 billion of 10-year bonds at an average yield of 2.96 per cent, down from 2.98 per cent on April 5, as part of an auction of €7.43 billion of government debt.

France's 10- year bond yield fell 3 per cent to 2.92 after S & P cut Spain's credit rating two levels to BBB+ from A on April 26, citing concerns that losses buried in the country's banking system may overwhelm government efforts to shore up public finances.

The government has embarked on a third attempt to clean up the banking industry since a real estate bubble burst in 2008, leaving them hobbled with bad loans and overvalued assets.

Spanish bonds were the worst-performing of 26 sovereign- debt indexes tracked by Bloomberg and the European Federation of Financial Analysts Societies in April, with losses of 1.8 per cent.

Bloomberg