Wednesday 13 December 2017

Spain pays more for loans as bond sale misses target

ECB president Jean-Claude Trichet. Photo: Getty Images
ECB president Jean-Claude Trichet. Photo: Getty Images

Emma Ross-Thomas

SPAIN is paying more than one percentage point extra for short-term loans than last month, to judge from an auction of 12-month bonds yesterday.

ECB president Jean-Claude Trichet said European governments should consider extending and broadening the region's €750bn bailout fund, as the pressures on euro area debt show no signs of easing.

Madrid sold €2.5bn of 12-month treasury bills, but a lack of demand at acceptable prices meant this was less than the €3bn maximum target set for the auction.

"The big story is going to be Thursday [when Spain has a major bond sale]," said Gianluca Salford, a fixed-income strategist at JP Morgan in London.

"All the other peripheral countries have been out of the market for December; liquidity is poor, final demand is poor, so technically the situation for Spain is bad."

Spanish bonds continued to decline on the market after the sale, with the 10-year bond yield rising to 5.53pc.

The spread over German bonds widened to 2.562pc -- which was still less than the euro-era record of 2.98pc on November 30.

Mr Trichet said European governments should consider extending and broadening the region's bailout fund. He repeated his calls for fines and "possible limitations of voting rights" on countries that break fiscal rules.


"We're calling for maximum flexibility and maximum capacity, quantitatively and qualitatively," he said, responding to a question whether the European Financial Stability Facility should be able to buy government bonds.

The ECB increased its own bond purchases last week as part of its package of measures aimed at easing the sovereign debt crisis, purchasing €2.667bn. It is thought that most of these were Irish and Portuguese bonds.

"The Governing Council is clearly quite reluctant to step up its own bond purchases so, therefore, they're implicitly calling on governments to address tensions in bond markets," said Julian Callow, chief European economist at Barclays Capital in London. "At the end of the day, the ECB is concerned about its long-term credibility."

EU leaders meeting in Brussels for a summit tomorrow are divided over the next steps in containing the debt crisis. Germany and France have rejected increasing the bailout fund and dismissed calls by Italy, Belgium and Luxembourg to issue joint euro-region government bonds.

Mr Trichet said Ireland's austerity programme would contribute to restoring confidence and safeguarding financial stability in the euro area.

"I am sure that the programme is suited to bring about a sustainable stabilisation of the Irish economy and soothe tensions in financial markets that are associated with the Irish fiscal problems and the reorganisation of its banking sector," Mr Trichet said.

Irish Independent

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