Friday 24 November 2017

Improved sentiment helps Spain cut debt costs at bond auction

IMPROVED investor sentiment toward struggling southern European economies helped Spain cut debt costs at an auction today, allowing it to reach nearly 9 percent of the year's longer term borrowing needs.

The Treasury sold just over €4.5B of bonds maturing in 2015, 2018 and 2041, hitting the top end of what it hoped to sell.

With the sale it has completed close to 9 percent of its 2013 medium- and long-term gross funding needs in just two bond auctions.

Spain sold €2.4B in a 2015 bond and the yield fell to 2.713 percent compared with 3.358 percent at the previous auction of that maturity.

"Yields were lower than at the past auction, demand looks good. It fits in the trend we've seen so far. It is a reflection of strong liquidity and improved sentiment towards (euro zone) peripherals," said Alan McQuaid, chief economist at Merrion Stockbrokers in Dublin.

"Spain will be happy with the results," he said.

A day earlier Italy also took advantage of high demand and consequentially lower borrowing costs, raising 6 billion euros with a 15-year bond sale and meeting nearly 10 percent of its 2013 borrowing target.

Spain's financing costs have dropped by more than 2 percentage points on its 10-year benchmark since the height of the euro zone debt crisis in July last year and after the European Central Bank pledged to do everything necessary to protect the euro.

The 10-year bond was yielding around 5.025 percent on Thursday ahead of the auction and moved to 5.04 percent after the auction.

The ECB pledge -- which included a programme to buy bonds if a country needed it after applying for a bailout -- meant investors were given something of a safety net.

Spanish Prime Minister Mariano Rajoy has been reluctant to take the political risk attached to applying for the aid which could trigger an ECB bond-buying plan, but investors are unwilling to bet against the shadow of potential central bank participation.


The government unloaded more-than-targetted amounts at both its first bond sale Jan. 10 and at a T-bill sale Jan. 15 this year. Large companies, virtually priced out of the debt market last year, have also rushed to place paper.

Spain aims to raise €121.3B in medium- and long-term debt in 2013, up 7.6 percent from 2012.

At Thursday's auction the Treasury also sold a 2018 bond, at an average yield of 3.770 percent, down from 3.988 percent the last time that maturity was sold. The bid-to-cover ratio, a measure of demand, fell to 2.3 from 2.6 previously.

It also sold €512m of a 2041 bond with the yield falling to 5.696 percent from 6.002 percent and the bid-to-cover ratio coming in at 2.0 percent, the same as the last time it was sold.

The near-30 year issue, and a bond due July 30, 2040 on Dec. 13. which went to market in December, are the longest dated paper to be auctioned in a year and a half.

While the average maturity of Spanish debt fell to 6.04 years in November from 6.61 a year earlier, the Treasury has said it aims to keep the maturity level at current levels through this year's issuance programme.


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