Business World

Wednesday 13 December 2017

Spain sells €3.2bn in first bond sale since Moody’s cut

Spain sold €3.22bn of three-year debt in the first bond auction since Moody’s Investors Service stripped the nation of its top Aaa credit rating. Bonds rose after the sale.

The government sold the notes due 2013 at an average yield of 2.527pc, the Treasury in Madrid said today, compared with 2.276pc at a sale on August 5, and a secondary market rate of 2.604 before the sale.

Demand was 2.15 times the amount sold, compared with 1.89 times in August. The Treasury aimed to sell a maximum of€4bn.

Moody’s cut its rating for Spain to Aa1 from Aaa on September 30, citing a weak economic outlook.

Still, the company assigned a stable outlook and said the government would probably achieve its goal of cutting the budget deficit in half by next year.

Spain’s 10-year borrowing costs have fallen to 4pc from almost 5pc in June, when Greece’s debt crisis was spreading through southern Europe.

“Demand was decent,” said Harvinder Sian, a senior bond strategist at Royal Bank of Scotland in London. “It looks like we’re in some kind of pocket of stability.”

Three-year notes yielded 2.569pc at 10:59am in Madrid, compared with 2.604pc before the sale, while the extra yield investors demand to hold Spanish 10-year bonds rather than German equivalents narrowed to 175.5 basis points, from 177.6 basis points yesterday.

Before today’s sale, Spain had about a quarter of its 2010 gross debt issuance to complete, according to data from the Treasury.

Net debt issuance will amount to €43.3bn next year, compared with a planned €76.1bn in 2010, according to the 2011 budget that is making its way through Parliament for approval by the end of the year.

Last quarter was the best for Spanish bonds since before Lehman Brothers Holdings collapsed in September 2008 as investors backed government steps to lower public workers’ wages, freeze pensions and raise taxes to trim a deficit that reached 11.1pc of gross domestic product last year.

Spanish bonds returned 4.1pc in the third quarter, after the government cut public workers wages 5pc, set a deficit target of 6pc of gross domestic product for 2011, and raised value-added tax to 18pc from 16pc.

Spain lost its top grade at Fitch Ratings in May and at Standard & Poor’s in January 2009.


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