Thursday's Spanish bond auction went well - possibly a bit too well, with pundits now worried that it will further delay what is seen as an inevitable request by Spain for a bailout.

The Spanish Treasury has issued a total of €4.88bn of debt with three and ten-year maturities, surpassing its target of €4.5bn. There was strong demand for the Spanish bonds, keeping yields low enough to aliviate some pressure off Spain to request international aid, at least temporarily.

Spain issued 10-year bonds for €859bn with a yield of 5.666%, well below the 6.647% demanded at the previous auction. The bid to cover ratio was 2.8 compared to 2.4 last time around.

Demand for the three-year bonds ran to €3.94bn at a yield of 3.845%, slightly more than the 3.774% of the prior auction. The bid to cover ratio was 1.6 compared to 2.0 the last time around. These 3-year bonds are considered to be among the bonds that the European Central Bank would be willing to purchase in the secondary market.

Analysts had warned that this bond auction was important because the longer-dated bonds may be more sensitive to market sentiment.

"Overall the auctions today were taken comfortably," said Nick Stamenkovic of Ria Capital Markets, "but a sustainable decline in yields really depends on the Spanish government coming up to the plate and asking for a sovereign bailout."

Spain's risk premium - the gap between the interest rate it has to offer on its debt and the benchmark rate on German bonds - had edged higher to 411 basis points (4.11 percentage points) prior to the auction after closing at 407 basis points on Wednesday. The 10-year bond yield stood at 5.69 percent moments before the auction kicked off.

The last time Spanish 10-year bonds were placed in the market, they demanded a 6.6% yield. On the other hand, International Monetary Fund (IMF) chief economist Olivier Blanchard said that Spain and Italy should be finding rates closer to 3 and 4%.

Analysts have warned that the upcoming bond auction is important because the longer-dated bonds may be more sensitive to the latest market sentiment.

Citigroup analysts told The Guardian that Spain would look to dodge a bailout and its corresponding conditions as long as yields were at sustainable levels.

Along the same lines, Gary Jenkins of Swordfish Research believes that there will eventually be a bailout but things will only speed up if the conditions imposed are insignificant. Jenkins does not doubt that those conditions are being negotiated but if they are too stringent Spain will prolong the process in the hopes of maintaining access to the market and avoid a full bailout.

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