Borrowing Costs Rise for Spain and Portugal

Spain and Portugal on Wednesday managed to raise the amounts targeted in their auctions later debt, an important test of market confidence in the midst of negotiations in Lisbon for a financial rescue plan and attempts to Madrid avoid having one.

Spain sold € 3370000000, or $ 4.9 billion debt, with the average yield on the benchmark bond 10 years rising to 5.47 percent from 5.16 percent last month. The auction has met with strong demand and was at the upper end of its target. This is an improvement over a Treasury bill auction on Monday, when Spain barely managed to reach its minimum goal despite offering higher rates to investors.

Portugal also had to offer higher rates in the sale of € 1 billion of treasury bills in the short term, but reached its goal and drew strong demand. Analysts suggested that the result will encourage the Portuguese Treasury to sell more short-term debt while its bailout plan talks continue.

The bond auction came amid worries that the financial difficulties of struggling economies euro are far from resolved - even those countries that are already saved, such as Greece.

Athens received a bailout € 110 000 000 000 last year, but perhaps even to restructure its debt because of the unbearable cost to repay investors in interest rates in double digits.

The Greek Finance Minister George Papaconstantinou on Wednesday again ruled out such a move, telling reporters in Athens that he held "enormous dangers to Greece for Greek banks, for households," according to Bloomberg News . But these statements have failed to convince investors.

Meanwhile, significant gains in elections last weekend in Finland by nationalist politicians, who are skeptical of having to bail out the euro member colleagues, have raised concerns about completing the first aid kit required by € 80000000000 Portugal.

In the auction Portuguese Wednesday, yields on six-month bills rose to 5.53 percent from 5.12 percent at the last auction on April 6.

"The financing costs are up a substantial because of the contagion effect of the restructuring talks Greek, which could revive fears of contagion," Chiara Cremonesi, fixed income strategist at UniCredit, wrote in a note to investors concerning Spain and Portugal. "The good news is that demand was healthy, and that will reassure investors."

The market sentiment has fluctuated in recent months amid conflicting signals from European politicians about their willingness to provide additional funding to countries that have already requested a rescue operation and prepare for possible rescue operations further. In particular, any bailout of the Spanish economy, which is larger than that of Greece, Ireland and Portugal combined, could put the survival of the euro in question.

At its last auction of 10-year bonds, for example, the Spanish Treasury has managed to slightly reduce its borrowing costs after an agreement in mid-March by European leaders to strengthen the European stability financial provision for the installation of rescue troubled economies, and allow the possibility to buy public debt under certain conditions.

Since then, however, the European political landscape became more fragmented because of the fall of the Portuguese Government and the outcome of elections in Finland.

Representatives of the International Monetary Fund, the European Commission and European Central Bank has arrived in Lisbon last week to begin negotiating the terms of a bailout. Their goal is to complete a deal by mid-May, before the general elections scheduled for June 5 June is also the month when Portugal is facing its most difficult obstacles to refinancing of the year.