Spain paid the most in at least eight years to sell three-yeardebt ahead of the publication of its banks' capital needs that willdetermine how much the euro area's fourth-largest economy needsfrom European rescue funds.

The Treasury today sold 2.22 billion euros ($2.81 billion) ofbonds, the Madrid-based Bank of Spain said today. That's above a 2billion-euro maximum target for the sale. Three-year bonds maturingin July 2015 fetched an average rate of 5.547 percent, comparedwith 4.876 percent on May 17, and the most since at least 2004.

Spain, which became the fourth euro member to seek a bailout onJune 9, will specify today how much it needs of the 100billion-euro credit line it has been granted to shore up banksburdened with bad loans while tackling a budget deficit as large asthat of Greece amid a recession. Spanish bonds rose after EuropeanCentral Bank Executive Board member Benoit Coeure told theFinancial Times that an interest-rate cut will probably bediscussed at policy makers' July 5 meeting.

The yield on Spain's 10-year benchmark bond fell 3 basis pointsto 6.66 percent after the auction at 9:58 a.m. in London. Thatcompares with a euro era high of 7.285 percent on June 18, a surgethat has prompted Prime Minister Mariano Rajoy's government to callon the European Central Bank to prop up the nation's bondmarket.

A bond maturing in April 2014 was sold to yield 4.706 percent,up from 2.069 percent on March 1. The yield was 6.072 percent forsecurities maturing in July 2017, up from 4.96 on May 3. Demand forthe July 2015 and April 2014 securities rose to 3.18 and 3.97respectively times the amount sold, compared with 3.01 and 2.81 atthe last auctions. It was 3.44 times for the five-year bonds,compared with 3.14 in May.

Italy and Spain, which account for more than a quarter of theeuro-area economy, are heading for sovereign bailouts in the next12 months that will send shockwaves through the global economy,Jamie Stuttard, Fidelity Investments' head of international bondportfolio management in London, said in a telephone interview onJune 19.

Both nations may stumble over debt auctions in the next year,forcing European authorities to find official funding for them tohold the single-currency area together, he said.

Spain's debt agency said on June 19 that it has sold 58.8percent of the 86 billion euros of medium- and long-term debt itplans to issue this year.

Bloomberg News

Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.