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Bonds News

REFILES-Spain bond costs to jump as Greece pressures periphery

* Bond costs to jump at sale of two bonds

* Demand not seen failing; bond redemptions help

* Results due Thurs around 0940 GMT

* Comes before key G20, ECB meetings

MADRID, Nov 2 (Reuters) - Spain’s financing costs will edge higher on Thursday when it returns to debt markets under pressure from a planned Greek referendum over its bailout package and faltering attempts to solve a euro zone crisis.

The Treasury wants to raise 3.5 billion to 4.5 billion euros ($4.8 billion to $6.2 billion) split between a three-year and a five-year bond. While raising that amount is unlikely to be a problem, renewed periphery debt pressures this week will force the Treasury to pay a high cost.

Spain’s debt costs jumped from already high levels to their highest since August this week after the Greek government called for a referendum over its 130 billion euro bailout package, which could drag Spain and Italy further into the crisis.

Analysts saw the yield on the five-year paper nudging up around 30 basis points from when it was last sold on Sept. 1 and when the average yield was 4.489 percent. The three-year bond was last sold in 2009.

The sales will be overshadowed shortly after the auction by the European Central Bank’s rate-setting meeting, the first with new President Mario Draghi as President, and by a G20 meeting in France.

The central bank itself is providing key support through its bond purchasing scheme to try and shelter other larger economies calling for a bailout. Further ECB support may well prove essential.

“For now it seems that the ECB need to play their part in keeping Spain’s borrowing costs from danger levels or risk sparking renewed debate over the sustainability of Spain’s debt costs,” said Jo Tomkins, analyst at consultancy 4Cast.

She said that was especially the case at a time when officials are short of details on exactly how to solve the euro zone’s debt and now crisis of confidence.

The bond sales may receive further support from investors reinvesting in Spanish bonds after the redemption of 14 billion euros worth of bonds this week, according to analysts.

The average yields at the auction are expected to be around the two bonds’ secondary market trading levels, which were 4.75 percent for the five-year bond and 4.0 percent for the three-year late on Wednesday.

Those levels would be higher if it were not for ongoing ECB support. On Friday data showed it bought 4 billion euros of government bonds in the previous week, taking its overall spending to 173.5 billion euros since 2010.

Analysts and traders estimate it has bought around 45 billion euros of Greek debt and has concentrated largely on Italian and Spanish debt with the 100 billion euros it has spent since restarting its purchases in early August.

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