Spain’s borrowing costs rise in first debt auction since credit rating downgrade

Spain’s debt costs rise

MADRID — Spain’s borrowing costs rose significantly Thursday in its first debt auction since its credit rating was downgraded last week by Standard & Poor’s amid concerns it might be hit by a Greek-style debt crisis.

The Spanish Treasury said it issued euro2.345 billion in 5-year bonds at an interest rate of 3.58 percent, up from 2.84 percent in the last auction in March.

It said Thursday’s auction was oversubscribed, with the Treasury receiving euro5.522 billion in bids.

The Treasury said its target this time was to issue between euro2 billion and euro3 billion in 5-year bonds. That is well below the euro4.5 billion issued in March.

A Finance Ministry official downplayed the government’s decision to scale back its debt issuance and played up the fact that Thursday’s auction was oversubscribed, saying it showed investors still have a strong appetite for Spanish debt despite market turbulence.

S&P said last week it had lowered Spain’s credit rating by one notch to AA because of concerns that low economic growth for several years to come would make it hard for the government to meet its goal of slashing a deficit that totaled 11.2 percent of GDP last year.

Spain’s next big test comes May 20 when it auctions 10-year bonds. The spread between those and benchmark German ones jumped 24 basis points Wednesday and another 20 on Thursday to 142.