Spain's sale of 2.5 billion euros ($3.28 billion) in three-year bonds on Thursday attracted strong investor demand but resulted in a sharply higher coupon, reflecting worries about its debt load.
The Central Bank said the treasury had to pay an average interest rate of 3.7 percent, up from 2.5 percent in the last such sale on Oct. 7.
Demand was double the amount on offer, however. The treasury was aiming to sell between 1.75 billion euros and 2.75 billion euros.
Spain has been forced to pay increasingly high interest rates at recent bond sales due to market speculation that it and neighboring Portugal might eventually need financial help from the European Union, like Ireland and Greece.
The latest sale, however, seemed to bolster market sentiment. The yield on Spain's 10-year bond fell 0.10 percentage points after publication of the sale results, to 5.2 percent. It was as high as 5.7 percent earlier this week and also was partly helped Thursday by hopes that the European Central Bank will boost its support to eurozone bond markets.
Madrid's main stock index rallied 2.5 percent ahead of an ECB press conference later in the day.
Spain, like Portugal, insists it can manage alone and has implemented reform packages in a bid to assuage investor fears. The fear is that austerity measures might backfire and hinder efforts to reduce debt by keeping growth weak.
On Tuesday, Spanish Prime Minister Jose Luis Rodriguez Zapatero announced the government would sell off a third of its national lottery business, partially privatize airports and cut both a key jobless benefit and taxes for small companies to soothe investor fears about debt.
The bond sale came hours after the Labor Ministry said the number of people filing claims for unemployment benefits rose for a fourth consecutive month in November.
The ministry said the figure rose by 24,318 for a rounded total of 4.1 million people receiving payments.
State secretary for employment Mari Luz Rodriguez pointed out it was the smallest increase for November in 12 years, indicating a possible leveling out of Spain's unemployment problem.
Spain's overall jobless number, including people without benefits, is published separately and stood at 19.8 percent in the third quarter, downs slightly from the second quarter but still the highest rate in the eurozone.
The country is struggling to emerge from nearly two years of recession triggered buy a collapse in its real estate sector during the international financial crisis. Its chief task now is to slash a swollen deficit from 11.2 percent of GDP in 2009 to within the EU limit of 3 percent by 2013.
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