Business

Spain and Italy's borrowing costs fall

A broker on the phone in Madrid
Image caption There was strong demand for Spanish and Italian bonds

Spain and Italy's borrowing costs fell sharply in bond auctions on Thursday.

Spain borrowed 10bn euros ($12.8bn; £8.3bn) - twice as much as its original target - paying an average interest rate below 4%.

Its interest rates for the three, four and five-year bonds were about one percentage point below its previous auction.

The interest rate on Italian 12-month bonds fell to 2.735% from 5.952% at the last similar auction in December.

Italy raised 12bn euros in its auction.

There was strong demand for the Spanish bonds, with investors bidding for 18.7bn euros, which was almost four times the amount originally offered.

"It's a step in the right direction, but the bigger test will be the longer-dated auctions further down the road," said Nick Stamenkovic, bond strategist at RIA Capital Markets in Edinburgh.

"It's encouraging, but it's just the start of a very heavy issuance programme in the first quarter."

Analysts also said that the heavy demand at the auctions was helped by the amount of cash that the European Central Bank is injecting into the system.