€3bn auction helps ease fears over Spanish debt
Friday July 16 2010
INVESTORS bought all €3bn of 15-year bonds offered by Spain, with demand strong enough to ease concern that the country would struggle to cover debt payments after Greece's bailout.
"The Spanish auction went well," said Chiara Cremonesi, a strategist at UniCredit Research in London. "Appetite for Spanish paper is alive."
Spain, which has to repay €24.7bn of debt this month, has the third-largest deficit in the euro region and its banks are dependent on the European Central Bank for funds.
Prime Minister Jose Luis Rodriquez Zapatero risks losing power as he pushes through austerity measures, including cutting wages, freezing pensions and cutting severance pay.
Yesterday's auction raised the maximum offered at an average yield of 5.116pc, compared with 4.434pc at a sale of the same securities on April 22, the Bank of Spain said. Demand was 2.57 times the amount sold, compared with the bid-to-cover ratio of 1.79 in April. Spanish bonds rose and the euro strengthened.
The government is hoping the publication of stress tests next week will allow its financial institutions to access capital markets.
Record borrowing
Spanish lenders borrowed a record €126.3bn from the ECB in June, up 48pc from the previous month, according to data compiled by the Bank of Spain. That compares with a drop of 4pc to €496.6bn for eurozone lenders as a whole.
The yield premium investors demand to hold Spain's 10-year debt over comparable German bonds fell to 199.6 basis points after the auction, from 211 basis points earlier. The euro gained 0.4pc to 1.2792 against the dollar. "People who expected the end of the world in July because of the redemptions have been proved wrong," said Gianluca Salford, a fixed-income strategist at JPMorgan Chase in London.
Spain's auction follows Greece's sale of Treasury bills on Tuesday, its first since the country accepted a three-year bailout plan from the European Union in May after its borrowing costs surged. Greece secured an interest rate at that sale below the 5pc charged on the emergency European loans.
Portugal sold more debt than targeted in an auction yesterday, a day after Moody's Investors Service cut the country's credit rating. Italy also sold €6.8bn of bonds.
Fitch Ratings cut Spain's credit rating to AA+ on May 28, citing concerns about the economy's ability to grow. (Bloomberg)
- Emma Ross-Thomas
Irish Independent
