Investors buy up €9bn of Spanish and Italian debt

Strong demand for €9bn (£7.5bn) of bonds sold by Spain and Italy yesterday helped cool worries about the prospect of bailouts for the Continent's most indebted nations.

Spain sold €3bn of five-year bonds, while Italy managed to shift €6bn of five- and 15-year bonds.

Both countries faced steeper borrowing costs: Spain's climbed to 4.5 per cent from 3.6 per cent at the last sale, while Italy's rose to just over 5 per cent for its 15-year bonds, up from 4.8 per cent, and to a two-year peak of 3.7 per cent for its five-year bonds.

However, the success of the auctions, after Portugal's debt sale on Wednesday, helped calm fears of a sharp escalation in the European debt crisis.

In the case of Spain, the biggest of Europe's most vulnerable economies, borrowing costs rose by less than 100 basis points, lower than the 130 basis point jump anticipated by analysts. As with Portugal, which sold €1.25bn worth of bonds on Wednesday, the Spanish sale was dominated by overseas investors, who are believed to have made up around 60 per cent of the buyers.

The optimism prompted by Portugal, Spain and Italy passing their first fiscal test of the year was tempered by the recognition that the underlying issues – bulging deficits, uninspiring growth and the threat of bailouts – remain unanswered. "Are we at the end of the road in terms of solving Europe's problems? Far from it," Sean Maloney, an analyst at Nomura, said.

"There's been a few things this week that have helped sentiment, but it's more about the excess of pessimism that had built up rather than there being any positive scenarios here."

Earlier in the week, relief at the Portuguese auction was damped somewhat by the widely held belief that the European Central Bank had intervened to stabilise the markets ahead of the sale.

When questioned on the matter, the bank's president, Jean-Claude Trichet, declined to go into details, saying only that the ECB's bond-buying programme was "an ongoing programme".