By Simon Miller

The Spanish government has sold short-term debt at a much lower rate than its previous debt auction.

The Treasury sold €1.67bn (£1.32bn) of three-month debt at average yields of 0.946%, 1.488% less than the 2.434% it paid at a similar auction in July.

In addition, €1.93bn of six-month bill were sold at average rates of 2.026% compared with 3.691% in July with demand also fairly strong although slightly down for teh six-month auction.

The three-month debt saw a ratio of 3.55 bidders per bond compared with 2.94 in July while the six-month sale saw 2.17 bidders versus 3.02 previously.

Investor's confidence was fed by the hope that Spain will ask for assistance in pushing down borrowing costs although analysts warn that this confidence could be misplaced.

Nick Spiro, of Spiro Sovereign Strategy,commented: "The real test begins next month when sentiment could worsen significantly if European Central Bank (ECB) -backed measures to shore up Spanish and Italian debt markets fall short of expectations. This may well be the summer lull before the storm."

However, confidence is still lacking in the Spanish financial sector with nationals continuing to pull their money out of the country's banks.

Private sector deposits fell by almost 5% in July to €1.509trn according to ECB data with Spanish loan books also continuing to shrink.

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