Saturday 21 October 2017

Euro falls as Spain's cost of borrowing hits 16-year high

Paul Day

SPAIN'S five-year borrowing costs hit new euro-era highs at an auction yesterday, sending the euro lower, as it struggles to convince investors it can control its finances, while France sold bonds of similar maturities at yields below 1pc.

The yield on Spain's July 2017 bond rose to 6.459pc, up from 6.072pc when it was last sold just a month ago and the most Madrid has paid to borrow at that maturity for 16 years.

Costs jumped on all three bonds offered, with the longest-dated, a seven-year, coming in near the 7pc mark.

Yields on 10-year Spanish debt trading in the secondary market climbed back above 7pc after the auction, with the spread versus German Bunds, seen as the least risky eurozone asset, close to record highs at 580 basis points.

In total, Spain sold €3bn of bonds, at the top end of its targeted range, although demand was softer than previous auctions.

Reflecting the growing gap between the core and periphery states of the eurozone, France sold €8.96bn of bonds maturing in 2015, 2016 and 2017, including €4.5bn of five-year debt at a yield of 0.86pc.

"They [Spain] sold what they wanted to sell, that's about the only good thing about it," said Monument Securities strategist Marc Ostwald.

"We shouldn't be surprised that there aren't many people turning up.

"We're still waiting for the bank bailout to be finalised and there's no guarantee that Spain itself won't need a bailout at some stage, so why would people want to be charging in right now?"

Eurozone finance ministers are due to sign off on up to €100bn of aid for Spain's battered banking sector today, though after cuts and tax hikes failed to convince investors, the sovereign may need a rescue package of its own.

Profits at one of Spain's healthier lenders, Bankinter, fell over 77pc in the first half after a hit from toxic real estate assets, leaving rivals braced for a tough earnings season amid a deep clean of soured property loans.

Spain has already managed to raise more than 65pc of its original medium- and long-term debt target of €85bn for the year.

New deficit targets and a central government promise to help the country's struggling regions mean the gross target is expected to increase by more than €20bn, however, which will add to pressure on the year's remaining bond auctions. (Reuters)

Irish Independent

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