Hefty Spanish short-term debt sales went smoothly on Tuesday after bond-buying by the European Central Bank eased concerns financing costs would be left to spiral to unsustainable levels for the bloc's weaker economies.
Spain's Treasury sold 4.15 bln euros ($5.85 bln) of 12-month T-bills, and 1.54 bln euros of 18-month bills, which together were at the top end of its 5-6 bln euro target, and up from 4.4 bln euros sold last month.
The results, with yields down from a month ago, were helped by the ECB's move to buy 22 billion euros of euro zone debt in the past week as it tries to ensure the debt crisis does not engulf Italy and Spain, the bloc's third and fourth largest economies.
France, in the market's sights recently after rumours it might lose its triple-A credit rating, sold 7.5 bln euros of seven-, 12- and 27-week T-bills at yields slightly lower than at sales of nearby maturities last week and well down on auctions two weeks ago.
On a busy day for bill auctions, Greece sold 1.3 bln euros of three-month T-bills, also at lower yields compared with the previous auction, while heavily-indebted Belgium saw its financing costs on three-month paper fall to their lowest level since February.
Analysts said the Spanish auction was well supported, but the ECB was a key factor in shrinking financing costs.
"The cost of funding is around 30-35 basis points down, clearly an indirect effect of the ECB going into the market buying Spanish bonds," said Chiara Cremonesi, analyst at UniCredit.
The bills drew comfortable demand from investors, even if concerns over the outlook for Spain, hampered by weak growth and a big public deficit, persist.
Official data showed Spain's economy grew by 0.2% between April and June on a quarterly basis, down from 0.3% in the first quarter.
Yields on the Spanish sales fell from the last time they were both sold in mid-July.
The average yield on the 12-month bill was 3.335%, down from 3.702% last month, and 3.592% on the 18-month issue, down from 3.912% in July.
Yields on Spain's key 10-year bonds rose close to 6.5% at the beginning of August over fears that euro zone policymarkers were acting too slowly to end a spiralling crisis. They have now fallen to around 5% after the ECB restarted its bond-buying scheme.
BELGIUM COSTS DROP
Belgium's debt agency took advantage of more favourable market conditions, selling 3 bln euros of treasury bills at their lowest borrowing costs since February.
The average yield for three-month treasury bills fell to 0.879% from 1.146% at the previous auction at the beginning of August. For the 12-month bills, the average yield fell to 1.113% from 1.884% at an auction in July.
The decline comes as investors look for less risky assets in the financial crisis, ING economist Philippe Ledent said.
"Paradoxically, what we have seen is that with the financial turmoil of last week, in fact the debt, including the short-term debt, of states, seems to be much appreciated due to a higher risk aversion," he said.
Greece's debt agency sold 1.3 bln euros of three-month paper, with yields down by 8 basis points to 4.5%.
