In an auction of medium-term debt on Wednesday, Spain sold €2.6bn in the sale of notes maturing in 2015, 2016 and 2020 - the bottom of its €2.5bn-€3.5bn target.
The 2020 bond on offer was sold at an average yield of 5.34pc, with a bid cover of three times.
Spain also sold three and four-year debt. For the notes maturing in 2016, the average interest rate on the three-year notes was 2.89pc, up from 2.44pc in the last such auction on March 15. The bid to cover ratio was 2.4, half what it was in the last auction. The average interest rate on the 2016 note shot up from 3.37pc to 4.32pc. The bid-to-cover ratio fell from 4.1pc to about 2.5pc.
The yield - the interest rate a country has to pay on its debt and an indication of risk - on Spanish 10-year bonds has been rising in recent weeks and stood at 5.53pc in the secondary market shortly after Wednesday's sale, compared to 4.9pc a month ago.
Borrowing costs had been expected to rise, reflecting growing investor concern over Spain's public finances and worries that Spain will be joining Greece, Portugal and Ireland in seeking a bailout.
The higher the yield, the more expensive it is for a country to raise money on the bond markets. Last November, Spain's yield hit 6.7pc - close to the point where a country can no longer afford to maintain its debt and seek a bailout
Peter Chatwell, interest rate strategist at Credit Agricole in London, said: "The results are a far cry from the blowout auctions we saw between December and February, which will no doubt be interpreted as the LTRO bid having dried up.
"There appears no problem in issuing the paper, but judging by the average yields at these auctions, demand is now much more price sensitive and a truer gauge of investor sentiment."
Wednesday's bond sale came a day after Finance Minister Cristobal Montoro spelled out the details of the new conservative government's 2012 budget proposal, an austere blueprint that aims to get Spain's deficit down from 8.5pc of gross domestic product last year to 5.3 percent this year.
The cuts are being introduced at a time when the country's economy is shrinking and expected to contract 21.7pc on the year.
The government also revealed on Tuesday that Spain's national debt will shoot up this year from 68.5pc of GDP to about 80pc.
The Telegraph
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