Investors were prepared to buy almost three times as many 12-month bills as were available and almost four times as many 18-month bills reports the interactive investor.
Chris Beauchamp, market analyst at IG Index, argued that the short-term nature of the bond sale limited its significance. Instead, he said that investors will have to wait until Thursday for a more concrete gauge of sentiment, when the Spanish government will to try to sell €2.5 billion in longer-term debt.
Earlier in the week, the yield on Spain’s existing 10-year bonds rose to 6.15 per cent, compared to the less than 2 per cent yield that Germany has to pay on its 10-year Bunds.
Last time the Greek, Irish and Portuguese bond yields breached the 6 per cent level, their borrowing costs rapidly escalated, ultimately forcing their governments to seek external support from the eurozone and the International Monetary Fund. This fuelled concerns that Madrid might fail to meet deficit targets, as the country acknowledged it has probably tipped into its second recession since 2009.
Spain is working towards slashing its budget deficit down from 8.5 per cent of GDP to 5.3 per cent by the end of the year, and further to 3 per cent in 2013, and has enforced a fiscal consolidation of €27 billion over 2012.
However, analysts remained sceptical about the plan, pointing out that with unemployment at 23% and youth unemployment at 50 per cent, public spending cuts on this scale would simply deepen the recession.