INVESTORS yesterday piled pressure on Spain to request aid and trigger a European Central Bank (ECB) bond-buying programme seen as inevitable to help it finance its debts, with the benchmark 10-year bond rising to just over 6%.
Short-term lending costs fell slightly from last month but remained high at auction yesterday, offering little hope that the country can finance itself at reasonable levels without seeking assistance.
The blue-chip Spanish index Ibex had lost 1.57% before 11am, ending a two-week rally after the ECB said it was ready to help distressed eurozone countries.
Spain is at the centre of the eurozone debt crisis, now in its third year, with investors concerned that Madrid is unable to bring down its massive public deficit and control its soaring debt levels.
The government has already requested a European lifeline of up to €100bn for its banks, but investors are not convinced that the country can meet its financial obligations and return to economic growth without international financial assistance.
On Monday, ECB governing council member Luc Coene warned Spanish Prime Minister Mariano Rajoy against delaying triggering the programme, saying it would not take long for yields to rise if he did. But Deputy Prime Minister Soraya Saenz de Santamaria said yesterday that the government was still considering the terms of a European bail-out, a condition of ECB help, weighing on investors’ patience.
"I think we’re in a political limbo where markets are waiting for Spain to ask for help, because ultimately if Spain doesn’t ask, the verbal boost from the ECB is going to fade away," said 4Cast analyst Jo Tomkins. "The longer Spain holds out, the more impatient markets are going to get and the more frustrated."
The premium traders demand to hold Spanish over German debt fell to five-month lows after the ECB announced the bond-buying programme on September 6, but Mr Rajoy has not made his position on aid clear, fuelling the renewed sell-off. Spain’s benchmark 10-year bond rose to about 6.03% before the auction, from 5.65% 10 days ago.
Spain’s Treasury, taking advantage of improved market conditions since the ECB announcement, sold more than the top end of its target of between €3.5bn and €4.5bn of 12-and 18-month Treasury bills. Although it was the highest amount sold at a Treasury bill auction since March and yields were slightly lower than a month earlier, demand for the paper was mixed and yields topped those in the grey market before the auction just a day earlier.
Investor frustration is likely to lead to demands for high premiums at tomorrow’s auction of €4.5bn of a new bond maturing in 2015 and the benchmark 2022 bond.