Markets rejoice at Spain and Italy bond auctions

Bailout candidates Spain and Italy passed their first test of the new year today as the pair raised more than 18 billion (£15 billion) at closely watched debt auctions, paying less to borrow the funds.

Both nations are under new political leadership as Italian premier Mario Monti and new Spanish prime minister Mariano Rajoy pledge to get to grips with deficits and restore international credibility.

They took a step down this path today as Spain sold 10 billion in bonds due in 2015 and 2016 - twice as much as hoped. Meanwhile Italy saw its borrowing costs for one-year debt plunge to 2.74% - less than half the price it paid in December and the lowest since June as it raised 8.5 billion.

Both countries face the prospect of rolling over hundreds of billions in debt this year but analysts welcomed the auction as a decent first step.

Italy's benchmark 10-year borrowing cost fell 30 basis points to 6.7% while Spain's eased to 5.1% today.

Newedge Group analyst Annalisa Piazza said of Spain's fundraising: "The auction was very strong, a good start to the year for Spain.

"People are starting to believe that something can be sorted out with the debt crisis," she added. "For the moment at least they are trying to make some money out of it."