Borrowing costs drop as Spain sells 3- and 6-month debt

Investing.com - Spain saw borrowing costs collapse at an auction of three- and six-month government bonds on Tuesday, amid growing expectations the European Central Bank will implement policy measures to help stabilize the euro zone's sovereign debt markets at its next policy meeting in early September.

Spain’s Treasury sold EUR1.67 billion worth of three-month government bonds at an average yield of 0.946% earlier in the day, down sharply from 2.434% at a similar auction last month.

Demand was strong, with bids exceeding supply 3.40 times versus a "bid-to-cover" ratio of 2.90 in July.

Spain also sold EUR1.93 billion of six-month debt at an average yield of 2.026%, down from 3.691% at a similar auction last month. The bid-to-cover ratio stood at 2.20, compared to 3.00 at an auction in July.

In total, Spain’s Treasury sold EUR3.60 billion of government debt, above the full targeted amount of EUR3.5 billion.

Bond auctions have become key drivers of risk sentiment in recent months, as traders attempt to gauge the ability of indebted euro zone nations to fund themselves.

The yield on Spanish 10-year bonds stood at 6.41% following the auction.

Meanwhile, the euro added to gains against the U.S. dollar, with EUR/USD rising 0.21% to trade at 1.2526.

European stock markets remained lower. Spain’s IBEX 35 Index dipped 0.45%, the EURO STOXX 50 fell 0.7%, France’s CAC 40 slumped 0.75%, Germany's DAX declined 0.65%, while London’s FTSE 100 eased down 0.25%.