Spain Sells Over 3 Billion Euros Of Bills As Bailout Talks Dominate Sentiment

The Spanish treasury has today paid the highest rate since last November as it moved 3.08 billion euros of government bills; the cost of borrowing has subsequently increased following Moody’s downgrade of 28 Spanish banks, as it cut at least 12 banks’ ratings to junk yesterday.  Spain’s largest lenders including Banco Santander were amongst the banks downgraded. Spain is the fourth largest economy in Europe and any major issues therefore pose a major threat to the European 17-nation currency if Spain does not find a rapid  solution its funding issues.

Three-month bills sold at an average level of 2.362%, in comparison with a rate of 0.846 percent at the previous auction.  Spanish 10-year borrowing rates have moved to the upside after the rating cut yesterday – which cited Spain’s deteriorating credit profile.  The yield associated with Spain’s 10-year bonds has advanced to a 6.71 high.   There is increased scepticism that EU leaders are going to produce the required measures to halt the ongoing debt crisis.

EUR/USD is currently trading at 1.2509 after recovering from a sharp drop earlier in the European session within a relatively modest but choppy price action environment.