Spain borrowing costs surge in bond issue

Spain's borrowing costs soared in a major bond test Thursday but the nation proved it can access the market despite growing fears of a banking bailout. The treasury raised 2.074 billion euros ($2.6 billion) in the auction of two-, four- and 10-year bonds, comfortably beating its own target range of 1.0-2.0 billion euros, Bank of Spain figures showed. But the funds came at a high cost, with the 10-year bonds fetching more than 6.0 percent -- a rate widely regarded as unsustainable for the state over the longer term. Investors fear Spain will be forced to snatch an international lifeline because it cannot raise the huge sums required to rescue its bad loan-ridden financial sector. Markets are wary of the unknown cost of bailing out the banks and pessimistic about the state's struggle to rein in public deficits at a time of recession and high unemployment. An IMF report on Spanish banks to be released on Monday will price their capital needs at 40-80 billion euros ($50-100 billion), Spanish newspaper ABC said Thursday, citing a draft of the document. The Spanish authorities have given themselves two weeks to take a decision on how to recapitalise weakened banks. In addition to the IMF report, officials are waiting for assessments by two private consulting firms, Roland Berger and Oliver Wyman, on the state of the banks' balance sheets. A breakdown of the latest sale showed the rate on benchmark 10-year bonds climbed to an average 6.044 percent from 5.743 percent in the previous comparable auction April 19. But that was still short of the euro era record of 6.975 percent struck November 17, 2011. For two-year bonds the rate shot to 4.335 percent from 3.463 percent at the previous comparable auction on April 19 and for the four-year bonds it surged to 5.353 percent from 4.319 on May 17.