Spain faces higher rates in latest bond issue | Business| Economy and finance news from a German perspective | DW | 19.07.2012
  1. Inhalt
  2. Navigation
  3. Weitere Inhalte
  4. Metanavigation
  5. Suche
  6. Choose from 30 Languages
Advertisement

Business

Spain faces higher rates in latest bond issue

Base interest rates are at an all-time low. The German government has even issued some short-term sovereign bonds with a negative interest rate. Spain, however, is paying more and more when it seeks loans on the markets.

The government in Madrid turned to investors again on Thursday, raising almost 3 billion euros ($3.68 billion) by issuing two-, five- and seven-year sovereign bonds.

Continuing concerns about the government's finances meant that the interest rates rose sharply when compared to the last Spanish bond issue.

Investors demanded interest rates of around 5.2 percent over a two-year period, compared to roughly 4.3 percent on June 7. Interest on five-year loans was up almost half a percentage point, at 6.45 percent. Creditors sought a return of 6.7 percent on the longer seven-year bonds.

An interest rate of 7 percent is frequently cited as the "tipping point" at which government borrowing becomes unsustainable.

Spain still managed to raise almost all of the 3 billion euros it had set as a maximum desired target, albeit at these much higher rates due to decreased investor demand.

"They have sold what they wanted to sell, that's the only good thing about it," analyst Marc Ostwald of Monument Securities told the Reuters news agency, saying the drop in demand was anything but a surprise.

The Spanish government under new Prime Minister Mariano Rajoy is in the process of increasing taxes and reducing state spending in a program designed to trim some 65 billion euros from the budget.

The cuts have been met with public protests, with major trade union demonstrations planned across the country for Thursday evening. Prior to those demonstrations, the German parliament is voting on the EU emergency loans package that is scheduled to be given to the stricken Spanish banking sector.

msh/tj (AFP, AP, dpa, Reuters)