MADRID |
MADRID (Reuters) - Yields at Spain's last scheduled debt issue for this year rose compared with the equivalent sale a month ago and analysts warned of tough times ahead in 2011 even as the country slashed its state deficit.
Spain's Treasury sold 3.9 billion euros of its three- and six-month bills, at the top end of its three to four billion euros target range, though with 3 billion allocated to the lower yielding three month issue.
The auctions both saw reasonable demand, but yields edged higher even after rising by around 80 basis points at their last sale in November, reflecting market fears that Spain will end up needing a rescue package like Ireland and Greece.
Data from the Treasury Secretary showed that higher taxes helped Spain slash its state deficit by 46 percent in the first eleven months of the year, leaving the country on target to meet its goal of 9.3 percent of gross domestic product for the broader public sector shortfall.
Economy Minister Elena Salgado dismissed fears that Spain would face any financing problems in 2011, despite market concerns over the country's ability to finance 15.5 billion euros of bonds maturing in the Spring.
"We are not going to have any financing problems next year," she said.
But the government has to reduce the deficit by more than another 3 percentage points of GDP in 2011 and economists were less sanguine about its fate in the new year.
"All in all it's a reasonable result in current conditions, if far from impressive. It's going to be testing times for Spain, Portugal and even Italy heading into 2011," said Orlando Green, analyst at Credit Agricole.
The yield on the three month issue was 1.804 percent, up from the 1.743 percent seen on November 23, while the six month rose to 2.597 from 2.111.
That was roughly in line with expectations but slightly below where they were trading beforehand on the secondary market.
Back in January, the Spanish Treasury paid just 0.38 percent on three-month paper, and 0.483 percent for six-month debt.
Tuesday's auctions came after ratings agency Moody's put Portugal on review for a possible downgrade, almost a week after doing the same to Spain, and having cut Ireland by five notches last week.
On Tuesday, the key risk premium on Spanish debt as measured by the spread between 10-year bonos and German bunds was slightly higher on the day around 260 basis points.
DEFICIT CUTS ON TARGET
Official data showed the central government deficit, which does not include the pension system or regional government deficits, fell by 46 percent between January-November compared with the same period a year ago. That was equivalent to 38.765 billion euros.
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