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BONDS

Spain’s borrowing costs fall on short-term bonds

Borrowing costs for Spain eased as it raised €4.047 billion in short-term debt on Tuesday, a sign of further-strengthening market confidence in the crisis-hit country.

The sale offered further encouragement for the eurozone's fourth-biggest economy, which last year resisted speculation that it would need a sovereign bailout to rescue its public finances.

Overall demand for the 12- and six-month Spanish treasury bills was €10.9 billion , more than double the government's upper target of €four billion ($5.2 billion), the central bank said in a statement.

The rate of return demanded by investors who bought €1.013 billion of six-month bills fell to 0.492 percent from 0.530 percent in the last comparable sale on April 16.

Investors also bought 3.034 billion euros' worth of 12-month bills at a rate of 0.994 percent, down from 1.235 percent on April 16.

The treasury was also in the course of carrying out an auction of benchmark 10-year bonds in a syndicated sale to a group of banks, the economy ministry said.

After a turbulent 2012, indicators of confidence in Spain have strengthened over recent months.

Its borrowing costs have fallen since the European Central Bank (ECB) announced in September its readiness to act to curb borrowing costs for troubled member states that accept strict conditions.

The economic outlook remains dark however. Spain has been in recession since late 2011 and is not expected to emerge from it until next year. The unemployment rate has soared past 27 percent.

Other data on Tuesday showed that the net debt owed by Spanish banks to the ECB fell for the eighth month running in April to reach its lowest level in a year.

It was €257.2 billion in April, down from a peak of 388.7 billion reached in August, the data from the bank of Spain showed.

Higher debt to the ECB indicates greater difficulty for banks to raise financing on the markets — another key indicator of financial confidence in the country.

The figure remains relatively high, having surged over the past two years of financial trouble from €42.2 billion in April 2011.

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CLIMATE

Swedish central bank sells bonds ‘for climate reasons’

Sweden's Riksbank has sold government bonds issued by Canadian and Australian states "for climate reasons", in one of the first cases of a central bank joining the global divestment movement.

Swedish central bank sells bonds 'for climate reasons'
The Bulga Coal complex in New South Wales, Australia. Photo: Glencore
Deputy Governor Martin Flodén revealed on Wednesday that the bank had in April divested itself of bonds issued by the Canadian province of Alberta, and more recently sold bonds issued by the Australian states of Queensland and Western Australia. 
 
“We will not invest in assets issued by issuers with a large climate footprint,” he explained in a speech at Örebro University on Wednesday.  “Australia and Canada are countries that are not known for good climate work. Greenhouse gas emissions per capita are among the highest in the world.” 
 
Flodén said the move followed a decision last year by the bank's executive board to take sustainability into account when making investment decisions. 
 
“We can contribute to the climate work to some extent by giving consideration to sustainability aspects when investing in the foreign exchange reserves,” Flodén said. “We are now doing this by rejecting issuers who have a large climate footprint.” 
 
Alberta's tar sands are some of the most polluting hydrocarbons in the world, while Queensland and Western Australia host some of the world's biggest coal mines. 
 
In a statement emailed to reporters, Christine Myatt, spokeswoman for Alberta Premier Jason Kenney, insisted that Alberta had the “highest environmental standards in the world”.  
 
“If the Swedish central bank is really concerned with making a difference on climate change they need to be investing more in ethical producers such as Alberta which have shown dramatic gains in reducing emissions,” she said. 
 
The City of Örebro was the first Swedish city to commit to pull its funds out of fossil fuels, following the example of cities like San Francisco, Seattle and the Dutch town of Boxte.

 
In his speech, Flodén said he had doubts about taking a more active approach to sustainability, and investing foreign exchange reserves directly “in particularly climate-friendly assets, such as green bonds.” 
 
Sweden's reserves, he explained, are currently invested solely in government bonds, something the bank was reluctant to change.  
 
“This is partly to hold down financial risks, and partly because monetary policy, apart from determining the general interest-rate level, should disturb pricing on the financial markets as little as possible.” 
 
This means that central banks can only have a limited role in pushing the world towards a greener economy, he said. 
 
“This is entirely natural,” he said. “The important decisions on how climate change should be counteracted in Sweden are political and should be taken by the government and the parliament.”
 
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