Spain easily raises $12.7 billion in debt auction

[January 12, 2012]  MADRID (AP) -- Spain successfully raised nearly euro10 billion ($12.7 billion) in debt auctions Thursday in a sign of investor confidence in the new conservative government's attempts to get a grips on the country's debt.

The treasury said demand for the three bonds, which mature in 2015 and 2016, was strong and the amount sold was double the maximum sought.

The auction was the first since the conservative Popular party took office last month after its landslide election win Nov. 20. It came a day after Parliament approved the government's first austerity measures, a euro15 billion ($19.1 billion) package aimed at reining in the swollen deficit. The country's Ibex stock market index rallied 1.5 percent on news of the sale.

Spain has a 21.5 percent unemployment rate and its economy is expected to fall back into recession. It is battling to avoid slumping further into a debt crisis that has already forced Greece, Ireland and Portugal to seek financial bailouts.

Its borrowing costs shot up last year but have eased in auctions since the election.

Marc Ostwald, strategist for Monument Securities described the demand Thursday as "very impressive" and said the sale indicated a welcome for the government's efforts to quickly bring the deficit under control.

"There is no denying the overall success, particularly as yields are well down on previous equivalent sales, " he said in a note.

In 2010, Spain began to emerge from a near two-year recession triggered by the collapse of a property and construction bubble that drove growth for nearly a decade. Economy Minister Luis de Guindos predicts the economy will slide back into recession early this year with the last quarter of 2011 and the first of 2012 both registering negative growth.

Also on Thursday, Italy saw its borrowing costs drop sharply as it easily sold euro12 billion ($15 billion) in bonds in its first test of market sentiment of the new year.

Investors bought euro8.5 billion in 12-month bonds at a yield of 2.735 percent, sharply down from last month's rate of 5.95 percent, and euro3.5 billion in bonds expiring at the end of May at just 1.644 percent interest, down from 3.251 percent in the last comparable auction.

Spain has pledged to slash its deficit from 11.2 percent of GDP in 2009 to within the European Union limit of 3 percent by 2013.

Under the former Socialist government, widely criticized for its handling of the economic crisis, the deficit target for 2011 had been 6 percent. But the new government claims their predecessors concealed data and that the figure will be at least 8 percent.

Finance Minister Cristobal Montoro, however, insists the aim for 2012 remains 4.4 percent, as the Socialists had planned.

The new austerity measures include euro8.9 billion ($11.3 billion) in spending cuts, a freeze on civil servants' salaries and on practically all government hiring. The government has also ordered a two-year increase in income and property taxes.

The package was part of an extension of the 2011 budget because the last government did not pass one for 2012. More austerity measures are expected when the government presents its 2012 budget by the end of March.

[Associated Press; By CIARAN GILES]

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