Spain's short-term financing costs dropped sharply at a primary Treasury bill auction on Tuesday from a month earlier, though it still paid eye-watering levels as nervous markets braced for a raft of potential euro zone rating downgrades. Spain's Treasury easily sold 4.9 billion euros of 12- and 18-month Treasury bills, above the top end of the targeted range, at rates of almost one percentage point below the 14-year highs recorded in a similar auction in November. The premium investors demand to hold Spanish over German debt rose above 400 bps on Monday for the first time in two weeks after a European Union summit last week failed to calm market concerns over the debt crisis. The average yield on the 12-month issue was 4.05 percent, compared with 5.022 percent last month, and it was 4.226 percent on the 18-month bill, after 5.159 percent in November. Both saw solid demand. The bid-to-cover ratio, an indicator of investor appetite, was 3.1 on the 12-month bill and it was 5.0 on the 18-month compared to 2.1 and 6.0 respectively at the last auction. http://www.cnbc.com/id/45650757