MADRID — Spain sold one-year government bills Tuesday at the highest yield since 2008, underlining broader concerns about the ailing euro zone economies amid tense negotiations over another rescue package for Greece.
In another sign of mounting jitters ahead of a European Union summit meeting Thursday, borrowing from the European Central Bank spiked Tuesday, indicating that many banks are having trouble raising money on open markets.
The treasury of Spain sold €3.79 billion, or $5.4 billion, of 12-month notes as well as €661 million of 18-month securities, meeting the targeted amount. Borrowing costs were much higher than a month earlier, however: 3.702 percent for the one-year bills, compared with 2.695 percent in June. The yield on 18-month bills rose to 3.91 percent from 3.26 percent.
Separately, the E.C.B. reported that banks borrowed €197 billion in its weekly funding operation, the largest amount since February. A total of 291 banks asked for E.C.B. loans, the highest number in four weeks.
When banks borrow from the E.C.B., it often means that other banks are refusing to lend to them at rates competitive with the 1.5 percent that the central bank charges for one-week loans.
The demand for E.C.B. funds was also a sign that bank stress tests carried out by European regulators, whose results were released Friday, had not, as hoped, restored confidence in the banking system.
Five Spanish banks were among the eight institutions that failed the tests, highlighting the Spanish banking sector’s exposure to a collapsed property market. Still, two Spanish savings banks are set to defy volatile market conditions by listing their shares this week, in what is seen as a key test of whether such cajas can tap the stock market to meet stricter capital requirements.
Shares in Bankia are to start trading Wednesday, followed by those of a smaller caja, Banca Civica, on Thursday.
Bankia, formed by a seven-way merger led by Caja Madrid, is the largest among the unlisted cajas. With an initial market valuation of €6.5 billion, Bankia will also be among the country’s biggest listed companies, despite being forced to sharply cut the pricing of its initial public offering to attract sufficient demand.
On Monday, Bankia set a final issuance price of €3.75 per share, 15 percent below its indicative pricing range.
Investor appetite for Spanish government bonds will also be tested Thursday, when the treasury is planning to sell to €2.75 billion of 10-year and 15-year bonds.
In April, when Portugal was forced to join Greece and Ireland in seeking an international bailout, yields on Spanish government debt remained relatively stable. Any notion of decoupling between Spain and other suffering euro economies, however, has since been wiped out by the deepening crisis in Greece, as well as by more recent concerns over Italy’s finances and Prime Minister Silvio Berlusconi’s tense relationship with his finance minister.
Haggling by E.U. leaders over whether, and how, private investors should contribute to a second bailout for Greece has also rekindled contagion fears.
Chancellor Angela Merkel of Germany sought to dampen expectations that the summit meeting would provide the final word. “Further steps will be necessary, and not just one spectacular event which solves everything,” she said, Reuters reported from Hanover.
Last week, the yield spread between Spanish and German government bonds reached 376 basis points, or 3.76 percentage points, the highest level since the launching of the euro.
Concerns about Spain’s own budgetary performance have been stoked by new disclosures about the size of the deficit in some regions, most notably Castilla-La Mancha, following regional elections in May that turned into a debacle for the governing Socialist Party.
The electoral defeat has also raised pressure on Prime Minister José Luis Rodríguez Zapatero to call a general election before the deadline of next March.
Jack Ewing reported from Frankfurt.
Article source: http://www.nytimes.com/2011/07/20/business/global/borrowing-costs-rise-for-spain.html?partner=rss&emc=rss
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