Recall that in the last several weeks I discussed the importance of the upcoming Spanish government debt auction. I felt that it would be an indicator of the investment community’s faith in the European’s ability to have staved off their debt crisis. Well yesterday saw Spain raise its full intended amount of 3.5 billion euros. Another indicator of the financial markets’ faith in the European plan is that the cost of borrowing in Spain only increased by 12 basis points. So the cost of a 5-year bond to the Spaniards went up to 3.657% from 3.537%.
This result was even in the face of a warning from debt ratings agency Moody’s which warned that it would possibly downgrade Spain’s credit rating because of the additional debt. Given the foment, this very minor increase in the cost of borrowing is very surprising.
Now the attention shifts to Greece’s efforts at raising debt taking place in a couple of weeks. If that succeeds it will likely calm the panic that seems to have permeated investors’ moods for the last 6 weeks.
Jason
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