By Simon Miller

Spain past a crucial bond test this morning when it sold more than €2bn (£1.62bn) in debt despite concerns over the health of its banking sector.

The country managed to sell €638m in two-year debt with an average yield of 4.335% compared to 3.46% previously and offloaded €825m of four-year bonds at 5.35% compared with 4.32% at the last auction. It also sold €611m in ten-year debt at 6.044% compared to 5.4%, raising €2.074bn slightly above Spain's target.

The auction will bring relief to the government that is not only struggling with its ongoing banking crisis but rising debt costs in the market.

Ten-year debt yield hit a peak of 6.7% at the beginning of June and the government feared it was being shut out of the debt market.

On Tuesday, treasury minister Cristobal Montoro told Onda Cero radio that market interest rates were now prohibitive.

"The risk premium says Spain doesn't have the market door open," he said. "The risk premium says that as a state we have a problem in accessing markets, when we need to refinance our debt."

Spain's fourth largest bank Bankia's troubles continued yesterday after Eduardo Torres-Dulce, Spain’s attorney general, said he had ordered the country’s anti-corruption unit to investigate the management of the bank just weeks after the lender asked the government for €19bn in state aid to prevent its collapse.

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