Spain paying more to borrow

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MADRID, Aug. 8 (UPI) -- Spain was forced to pay more to borrow in a $3.7 billion auction of short-term government debt, pushing its debt to dangerous levels, an analyst said.

The Spanish Treasury sold $2 billion of three-month bills at an average yield of 2.434 percent, compared with 2.362 percent at the last auction, and $1.7 billion of six-month bills yielding an average of 3.691 percent, up from 3.237 percent previously, the Financial Times reported.

Richard McGuire, senior fixed-income strategist at Rabobank, told the Times that while the auction went well and yields on short-term debt weren't near the highs of last November, "Spain's interest costs are already at levels that will prove unsustainable over the long term."

McGuire said Spain risked entering "Ponzi game conditions," where the government would be forced to issue new debt to pay for existing obligations.

The auction came hours after Moody's lowered its outlook on triple-A rated Germany, Netherlands and Luxembourg from stable to negative, the Times said. The rating agency said the change reflected the increased risk that Greece might leave the eurozone and the anticipation that distressed countries such as Spain may need more financial support from the eurozone's core.