Falling Portugal and Spain debt rates point to recovery

June 19, 2014 - 12:05:39 am

LISBON: Spain and Portugal both breezed through bond auctions yesterday, with rates on the former eurozone laggards plunging after the ECB slashed its rates in a bid to boost growth.

Interest rates on Spain’s three- and five-year debt fell to a new record low in an auction that raised just over ¤3bn, its economy ministry said in a statement.  

Analysts said the drop in Lisbon’s borrowing costs could help the country to pull away from austerity faster than expected as they reduce its overall debt load.

Both countries are returning to growth after years of crippling recession sparked by the eurozeone debt crisis and are still feeling the impact of harsh austerity measures.

Bond yields for weaker eurozone countries have also fallen since the European Central Bank this month cut its three main interest rates and pushed its deposit rate into negative territory for the first time on record in a bid to fight deflation and boost growth.

“The ECB’s bundle of policy measures last week has spurred a further rally in peripheral bonds,” said Christian Schulz at Berenberg.

“The ECB has further reduced the downside risks to growth in Europe, making the periphery less vulnerable.”

Spain has now covered more than two-thirds of its annual medium and long term funding of ¤133.3bn ($181bn) after its latest auction, its economy ministry said.  

The figures mark a stark turnaround from when it sought a ¤41bn rescue package in 2012 and point to add to upbeat data showing Spain’s growth picked up in the first quarter. Madrid paid 0.876 percent on ¤1.525bn of three-year paper, down from 0.968 percent on June 5.