June 2, 2011 / 9:40 AM / 8 years ago

UPDATE 1-Spain bonds see solid demand as Greek talks drag on

* Spain sells 3.95 bln euros of 2014, 2015 bonds

* Yield on 2014 bond up 47 bps vs last auction in April

(Adds detail, comment)

MADRID, June 2 (Reuters) - Spain saw strong demand for 3.95 billion euros ($5.67 billion) of medium-term bonds on Thursday, though a broad drop in risk appetite and lingering uncertainty over how talks on fresh aid for Greece will pan out kept yields high.

In a litmus test of investor appetite for peripheral euro zone debt as policymakers thrash out a plan to avert a Greek default, the 2014 bond, with a 3.4 percent coupon, sold 2.75 billion euros at an average yield of 4.037 percent.

That compared with 3.568 percent at the previous auction in April, while the bid to cover rate rose to 2.5 compared with 1.8.

The 2015 bond, last issued in September of last year and with a coupon of 3 percent, sold 1.2 billion euros at an average yield of 4.230 percent, slightly lower than yields on the secondary market.

The bond was 2.9 times subscribed after being 1.6 times subscribed at its last auction.

“Since the (2014) launch early April, we’ve had an escalation on the peripheral side, so a firm selling since then, which is why (the yield) jumped so much,” economist at 4Cast Jo Tomkins said.

“You’ll see plenty of buyers coming in at that level, especially since the Greek deal seems to be moving in a positive direction.”

Since April, when the 2014 bond was last issued, Portugal has asked the European Union and International Monetary Fund for a rescue package and both Greece and Ireland have requested a revision of their aid conditions.

Over the last week, investor concerns about the euro zone periphery have been ratcheted up on disagreements over how to structure a new aid package for Greece, with a multi-notch credit downgrade by Moody’s on Wednesday added to the unease.

Fixed-income traders’ risk appetite diminished further ahead of Friday’s U.S. payroll report, which many in the market are betting will be weak following a raft of dismal U.S. data on Wednesday.

Spain has not faced problems selling its debt in recent months, but has paid high yields to investors still worried that a debt crisis sweeping across the euro zone will eventually spread to the Iberian nation.

Spain’s key debt risk premium as measured by the spread between its 10-year debt yield and that of German benchmark bunds was around 234 basis points after the auction, some 2 bps down from before the issues. ES10YT=TWEB DE10YT=TWEB

Including this sale, the Treasury had sold 45.2 billion euros in mid and long-term debt of the 93.8 billion euro initial gross issuance planned for this year.

Reporting by Paul Day; Editing by John Stonestreet

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