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Spain bond sale to test market confidence Spain bond auction: Borrowing costs edge up
(40 minutes later)
Spain will try to raise money on credit markets on Thursday days after it said it was all but blocked from them. There was strong demand for Spanish bonds at an auction on Thursday, which was seen as a key test of the country's ability to raise funds, but it had to pay a higher interest rate.
The planned move - a test of market confidence in its ability to pay - comes amid reports Spain has been seeking a bailout from eurozone funds. The rate on the 10-year bonds was 6.044%, up from the 5.743% paid when bonds were last sold in April.
Meanwhile European authorities are said to be working on a way to help Spain's troubled banking sector. Spain sold 2.1bn euros ($2.6bn; £1.7bn) in medium and long-term bonds.
It comes as European authorities are said to be working on a way to help Spain's troubled banking sector.
UK Chancellor George Osborne said: "I know they are working very hard on an imminent solution."UK Chancellor George Osborne said: "I know they are working very hard on an imminent solution."
He told the BBC: "I am optimistic that people are working hard on a solution, and a solution, I think, is coming."He told the BBC: "I am optimistic that people are working hard on a solution, and a solution, I think, is coming."
Hopes of a swift resolution have pushed down the yields on Spanish bonds on Thursday, which are taken as an indicator of the amount countries have to pay to borrow money. 'Prohibitive rates'
The yield on Spanish 10-year bonds fell below 6.1%, having recently risen above 6.7%. There was demand for 3.3 times as many Spanish 10-year bonds as were available on Thursday.
The Treasury sold 638m euros of 2-year bonds at a yield of 4.335% and 825m euros of four-year bonds at 5.353%, in addition to the 611m euros of benchmark 10-year bonds.
The yield on Spanish 10-year bonds from previous auctions, known as the secondary market, fell below 6.1% in trading on Thursday, having recently risen above 6.7%.
"Although the yield on the 10-year is just a tad below secondary market levels, these are prohibitive rates which underscore the dramatic deterioration in Spain's perceived creditworthiness," said Nicholas Spiro of Spiro Sovereign Strategy.
"If it wasn't for its banks' continued support at auctions, Spain would be unable to sell its debt."
Spain is keen to avoid a full international bailout, which would be politically damaging and come with strict economic conditions.Spain is keen to avoid a full international bailout, which would be politically damaging and come with strict economic conditions.
Crisis jargon buster Use the dropdown for easy-to-understand explanations of key financial terms:
AAA-rating The best credit rating that can be given to a borrower's debts, indicating that the risk of borrowing defaulting is minuscule. Glossary in full
It favours a bailout targeted directly at its banks, rather than at central government.It favours a bailout targeted directly at its banks, rather than at central government.
German Chancellor Angela Merkel will be meeting UK Prime Minister David Cameron later in the day.German Chancellor Angela Merkel will be meeting UK Prime Minister David Cameron later in the day.
Ahead of the meeting, she has been talking about the need for Europe to have more power.Ahead of the meeting, she has been talking about the need for Europe to have more power.
"We need not just a currency union; we also need a so-called fiscal union, more common budget policies," she said."We need not just a currency union; we also need a so-called fiscal union, more common budget policies," she said.
"We need above all a political union. That means that we must, step by step as things go forward, give up powers to Europe.""We need above all a political union. That means that we must, step by step as things go forward, give up powers to Europe."
She spoke on Wednesday to US President Barack Obama, who also called Italian Prime Minister Mario Monti to discuss economic conditions in Europe.She spoke on Wednesday to US President Barack Obama, who also called Italian Prime Minister Mario Monti to discuss economic conditions in Europe.
Mr Obama and Mr Cameron also called jointly for an "immediate plan" to restore confidence.Mr Obama and Mr Cameron also called jointly for an "immediate plan" to restore confidence.
Spain will try to raise $2bn (£1.3bn, 1.6bn euros) in a bond auction on Thursday. Are you in Spain? How has the current economic crisis affected you? Please send us your comments and share your stories using the form below.
As the return demanded by investors to lend to Spain has risen, Spain's finance minister said on Tuesday that the credit markets were "effectively shut" to his country.
But the BBC's Tom Burridge in Madrid said that Spain would be hoping that demand for its debt is high and the borrowing rates it pays at the auction are low.
If the reverse is true, then it will only further fuel rumours, so far denied by the Spanish government, that the country will have to seek some form of international assistance for its banks, our correspondent said.
Spain has to find at least 80bn euros to strengthen its banks, which are struggling because of bad property loans.