Ireland returned to short-term debt markets on Thursday for the first time since before its EU/IMF bailout in November 2010, paying less for three-month paper than Spain which has avoided going to international lenders for a full sovereign rescue.
International appetite for debt auctions held by the two countries - both victims of banking crises caused by a property market crash - varied widely, although Dublin's first commercial borrowing in almost two years was much more modest in size than Madrid's.
Whereas Ireland trumpeted international demand at its sale of three-month treasury bills, most foreign investors are shunning Spain's debt auctions, even though Madrid has avoided going to international lenders for a full sovereign bailout. The Spanish Treasury paid the highest rate in over seven months to borrow 10-year funds, suggesting the positive effect of last weekend's agreement by euro zone leaders is wearing off. Altogether, Madrid auctioned 3 billion euros ($3.75 billion) in three maturities of bonds. It sold 747 million euros in the benchmark 10-year bonds at an average yield of 6.43 percent, up from 6.044 percent at the last such auction on June 7.
Peter Chatwell, a rate strategist at Credit Agricole, said that at least Spain was still able to raise funds in the market - despite the problems of its banks, many of which have been brought to their knees by heavy lending to failed property projects and a second recession since 2009.
French borrowing costs held close to historic lows at its auction on Thursday of 7.8 billion euros of bonds, a day after it announced hefty tax rises on the wealthy to plug a revenue shortfall caused by flagging economic growth. "Sentiment-wise, France is a world apart from the woes of Spain and Italy," said Nicholas Spiro of consultancy Spiro Sovereign Strategy.
At a Brussels summit, the euro zone leaders agreed to let the bloc's EFSF and ESM bailout funds buy bonds in secondary markets and directly recapitalise banks. Spanish banks raised their holdings of domestic sovereign debt to from 16.9 percent of the total in circulation in December to 29.2 percent in March. By contrast, Ireland said foreign investors had backed its return to short-term debt markets on Thursday.
In a tentative first step following a nearly two-year hiatus, Ireland sold 500 million euros of treasury bills at an average yield of 1.8 percent. It said it hoped to return to long-term debt markets with a syndicated issue later this year or early next year at a maturity of two years or more. Ireland's 1.8 percent compared with Spain's sale last week of three-month debt at an average yield of 2.36 percent, while fellow struggler Italy had to pay 2.96 percent to auction six-month paper a day later.
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