Spain was able to meet its target today at a treasury bill auction on three and six-month T-bills but paid a higher price for them.
The Spanish Treasury was aiming to raise €3 billion in the debt markets today and managed to sell €2.978 billion worth of bills but at higher yields of 5.110% on the three-month treasury bills and 5.227% on the six-month bills.
Previous yields were at 2.292% and 3.302% respectively. Yields above 5% for short term bills are considered too high, and this was the highest euro-era price paid by the Spanish government so far on short term bonds.
This raises concerns whether Spain will be able to sustain such levels of debt. Last week Spain’s benchmark 10-year government-bond yields came under pressure as well, surging to a euro-era record above 7%.
This was the first debt sale since the weekend elections replaced Spain’s socialist government. The new centre-right government led by Mariano Rajoy is expected to implement a new set of austerity measures to shore up Spain’s finances.
These policies are welcomed by markets and helped support the euro so far this week.
The euro remained resilient despite the doubling of Spanish treasury bill yields to the highest level in 14 years. EURUSD has climbed to 1.3567 so far since the European session open price of 1.3491.