Today the Spanish Public Treasury examined national financial market credit with a debt sale that will take place in the least hospitable environment for our country since the euro was initiated. The high risk premium (measured by the difference between returns on Spanish and German bonds) is causing this tension to fester. Yesterday, the risk premium rose from 367 to 338 basis points, or 3.67%.
This level has never been reached during the history of the euro. In this context, the Treasury will aim to capture between 3.5 billion and 4.5 billion euros with placements of 12 to 18-month bonds.
Experts are convinced that there won´t be any problems with the financing. Considering that interest rates will increase substantially compared to what they were in June, one thing to consider is the price that Spain has to pay to complete the deal.
The interest paradox
Market sources admit that the stress test is taking place in an "environment that?s full of apprehension." Still, they note that it is precisely the high interest rates that we are waiting on in order to complete the placement and that this could guarantee that "demand is high and the financing goal is achieved." Usually, 12 and 18-year bonds are the most sought-after within the range of bonds offered by the Treasury.
