Spain borrowing costs fall in EUR 5.04bn bond issue

(MADRID) - Spain's borrowing costs fell on Tuesday when it raised 5.044 billion euros ($6.7 billion) in an auction of 12- and 18-month bonds on a market awash with cheap European Central Bank cash.

Spain attracted healthy demand and was able to pay lower rates to institutions, many of which had filled their pockets with low-interest, long-term loans offered by the ECB.

The ECB extended cheap, three-year loans of more than 1.0 trillion euros to eurozone banks in two operations in December and February so as to avert a dangerous credit squeeze.

Since then, yields have fallen on sovereign bond sales by vulnerable eurozone economies.

Spain's Treasury, which had aimed to raise 4.5-5.5 billion euros in the latest auction, lured bids amounting to nearly 12 billion euros, according to Bank of Spain figures.

Compared to the last auction of bonds with a similar maturity on February 14, yields on the 12-month bonds fell to 1.418 percent from 1.899 percent and yields on 18-month bonds dropped to 1.711 percent from 2.308 percent.

Taking advantage of lower rates, Spain has boosted the size of some bond auctions and has already completed 42.7 percent of its planned medium- and long-term bond issuance programme for 2012.

Cash-rich investors appeared undeterred by Spain's budget slippage.

The country failed to meet its 2011 target of curbing the public deficit to 6.0 percent of gross domestic product, reporting instead a deficit of 8.51 percent of GDP.

Spain has managed to negotiate with Brussels a looser deficit target of 5.3 percent of GDP for 2012, compared to 4.4 percent of GDP previously, but has vowed to meet its existing 2013 target of 3.0 percent of GDP.

Spanish banks boosted their net debt to the ECB to a record 152.4 billion euros in February, accounting for 47.2 of loans extended by the institution.

But their balance sheets are still impaired by the impact of the 2008 property bubble collapse, according to latest Bank of Spain figures.

Spanish bank loans in doubt of being repaid amounted to 140.03 billion euros ($185 billion), or 7.91 percent of total credits in January -- up from 7.61 percent in December and the highest ratio since 1994.