Spain faces new debt tests after Greek elections

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Spain faces new debt tests after Greek elections

Reuters | June 15, 2012 | 09:36 AM EDT

MADRID (Reuters) - With Spain's borrowing costs already near record highs on fears about the cost of fixing its banks, the country's ability to fund itself will be tested next week when it sells short- and medium-term debt in the wake of the Greek election.

The Treasury said on Friday it would sell three medium-term bonds on Thursday following a short-term debt T-bill auction on Tuesday.

The Treasury did not say how much it aims to raise at either of the auctions, but it is expected to keep the target low when it announces the issuance range on Monday at around 0800 EDT as refinancing costs rise.

While Madrid will likely pay punitive costs to dip into debt markets across all maturities, investors will be keen to see if there is still market appetite for Spanish paper.

The yield on Spain's 10-year bond topped 7 percent on Thursday after Moody's downgraded the country's debt to one notch above junk grade, a level after which Portugal, Ireland and Greece were forced to seek external aid.

Spain is already receiving European support to recapitalize its banks, many of which were shattered after a property bubble burst.

The outlook for the auctions will hinge on the result of Greek election on Sunday, which could be won by parties vowing to tear up an agreement over the harsh economic measures imposed by the European Union.

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