Spain pays lower short-term rates, shrugs off Cyprus

Spain’s short-term borrowing costs fell sharply on Tuesday in an auction of government debt securities as investors apparently shrugged off concerns that a disorderly sovereign bailout of Cyprus could roil eurozone financial markets.

The Spanish treasury raised 4.0 billion euros ($5.2 billion), at the top end of its 3.0-4.0 billion-euro target, as it sold three- and nine-month bills bearing interest rates that fell significantly from the last comparable auction on February 19.

The yield for three-month bills fell to 0.285 percent from 0.421 percent, in an auction that raised 1.74 billion euros.

For nine-month bills, the rate dropped to 1.007 percent from 1.144 percent as the treasury raked in in 2.263 billion euros.

Spain tapped the market just as Cyprus revisited its plan to help finance its sovereign bailout by imposing a levy on bank accounts, which had sparked fears of a bank run and forced the island to shut its banks until at least Thursday.

The handling of the Cyprus bailout stoked fears that investors would be more cautious about investing in other struggling eurozone economies, too.

Spanish Prime Minsiter Mariano Rajoy, a conservative, resisted pressure last year to seek a sovereign bailout.

Spanish borrowing costs have dropped since then, largely because the European Central Bank vowed to intervene on the markets if Spain sought its help. But market tensions lingered.

A key measure of investor confidence, the extra rate of return demanded on Spanish government 10-year bonds compared with that of benchmark German Bunds, edged up to 359 basis points in morning trade from 355 at Monday’s close.