Spain raises €2.1bn in bond sales
Spain has raised €2.1bn from the bond markets – but at higher interest rates as investors remained concerned the country might still need external help to shore up its banking sector.
Antonio Barroso, an analyst with Eurasia Group political risk consultants, said the sale was positive because it showed Spain can still fund itself, but the higher interest rate showed “markets still have a problem of confidence in the long term”.
“There is talk on the start of different solutions, but there’s still nothing concrete. And I think that’s why markets are still a little bit hesitant,” he said.
The successful sale of medium and long-term debt came days after Spain made its most explicit signal yet that it needs help from Europe for its struggling banks while finance minister Cristobal Montoro warned that the high interest rates demanded by investors on Spanish debt in recent weeks indicated “the door to the markets is not open for Spain”.
Spain’s banks are saddled with billions in soured property investments following the bursting of the country’s real estate bubble.
At the end of May, the most stricken lender, Bankia SA, said it needed €19bn in government aid to shore up its finances against losses on its toxic home loans. But Spain only has €5bn left in a €19bn fund it established in 2009 to help banks, and has not mapped out a plan for raising the extra funds.
Estimates have put the cost of a complete bailout for the Spanish banking sector between €40bn and €100bn.
Spain would like to get European aid for its banks but has pushed against the idea of asking directly because under current rules the aid would have to be given to the government.
That would allow Brussels to dictate policies to Madrid, something the Spanish government is keen to avoid. It would also further hit investor confidence in the country on the world’s debt markets, sending interest rates on its bonds even higher.
The interest rate on Spanish debt has soared in recent weeks to as high as 6.7% on fears over the country’s creditworthiness. A rate of 7% is considered by market-watchers as unsustainable over the long term – and the point at which Greece, Ireland and Portugal asked for a bailout.
The country has become the focus of Europe’s debt crisis because bailing out the eurozone’s fourth-largest economy could stretch the region’s finances to breaking point.
However, there have been reports that European Union officials have been exploring ways to inject funds into the country’s fragile banking sector without imposing strict conditions.
