Spain loan costs drop in year's 1st bond sale

Spain's borrowing costs tumbled in the first bond sale of 2013 by the government on Thursday, delivering a fresh boost after the country avoided a sovereign bailout last year. The Treasury sold 5.816 billion euros ($7.6 billion) in medium- and long-term bonds, the central bank said, with rates of return demanded by investors falling sharply compared to those of previous sales. Spain, with the eurozone's fourth-biggest economy, rode out a tense few months late last year as concern over its finances pushed its borrowing rates to record highs, fuelling speculation that it would have to seek outside help in the form of supportive action by the European Central Bank. But conservative Prime Minister Mariano Rajoy resisted pressure to request such a bailout as he pushed ahead with an unpopular programme of austere spending cuts and other money-saving measures. In Thursday's sale, the Treasury sold bonds of five years' maturity at an average repayment rate of 3.988 percent, down from 4.680 percent in the last comparable sale in November.It also sold longer-term bonds expiring in 2026 at a rate of 5.555 percent, down from 6.191 percent in the last such sale in July 2011, plus some two-year bonds that had no previous comparable sale. The Treasury far exceeded its target of selling four to five billion euros in bonds, placing a total of 5.816 billion euros' worth. Spain on Tuesday estimated its gross financing needs at 215-230 billion euros in 2013, after borrowing a total 249.6 billion euros in 2012. "The Spanish Treasury confronts 2013 in a more comfortable situation than last year, also taking into account the improvement in market conditions at the start of the New Year," it said in a statement on Tuesday. Spain slipped in mid-2011 into a recession that drove up the unemployment rate to 25 percent, the highest in modern Spanish history. In a broader sign of strengthening confidence over Spain, the yield on its benchmark 10-year government bond fell below five percent for the first time since March 2012, easing to 4.976 percent from 5.134 percent the day before. It had shot to danger levels above seven percent in the middle of last year at the height of the bailout fears. Another key measure of financial confidence, the risk premium that measures the difference in rates on the open market between Spanish 10-year bonds and safe-haven German ones, also eased to 348 basis points, or 3.48 percentage points. Spain's government said debt levels surged last year as it financed various emergency funds in the economic and financial crisis. In his final news conference of 2012, Rajoy said he expected a "very tough" year for the economy in 2013. He said he still had no plan to request supportive action from the European Central Bank -- for which he would first have to formally request eurozone financial assistance -- but would not hesitate to do so if the government judged it necessary. Spain forecasts a 0.5-percent economic contraction in 2013, but this is widely viewed as optimistic. The European Commission and the Organisation for Economic Cooperation and Development say they expect Spanish economic output to tumble 1.4 percent this year.