Spain's borrowing costs jumped at an auction of three- and five-year bonds Thursday, though the sale met strong demand in a sign that investors are not losing their appetite for the country's debt if the price is right. The sale was the first since Standard and Poor's cut Spain's credit rating by two notches to BBB+ last week and followed data showing the economy has slipped into its second recession since late 2009. The Treasury issued 2.5 billion euros ($3.3 billion), at the top end of a relatively small targeted amount after it reached half of its gross issuance target for 2012 in the first four months of the year. The yield on the longest bond, maturing in July 2017, rose close to 5 percent. Take-up rates were healthy, suggesting continued demand from the domestic banks that have underpinned recent debt sales. Spanish bond yields fell after the auction but Bunds briefly pared earlier losses, with some of the details in the results disappointing the market. “With foreign investors becoming even more risk averse, it's the ‘domestics' that are holding the fort,” said Nicholas Spiro, from Spiro Sovereign Strategy. “...As is invariably the case with Spanish auctions, there were mitigating factors at work - particularly today's fairly modest volume... The rapid deterioration in sentiment towards Spain is showing up mostly in higher yields. Demand is still there for the time being.” In France, 10-year borrowing costs stayed relatively stable on Thursday at the country's last debt auction before a presidential election on Sunday.
