Business World

Saturday 16 December 2017

Spain sells €6bn bonds, beating target and sparking price rally

Mario Draghi, president of the European Central Bank, left, listens as Wolfgang Schaeuble, Germany's finance minister, gestures during the 'Ludwig Erhard Lecture' event
in Berlin, yesterday
Mario Draghi, president of the European Central Bank, left, listens as Wolfgang Schaeuble, Germany's finance minister, gestures during the 'Ludwig Erhard Lecture' event in Berlin, yesterday

Emma Ross-Thomas and Angeline Benoit

Spain sold €6.03bn of debt -- almost twice the maximum target for the auction -- as the strong demand for the securities triggered a rally in the country's bonds.

Spain auctioned bonds due in 2016 at an average yield of 4.023pc, compared with 5.276pc when securities of a similar maturity were offered on December 1, the treasury said.

It priced bonds due in 2020 at 5.239pc, compared with 5.006pc in September, and sold an April 2021 bond, the current 10-year benchmark, at 5.545pc, less than the 5.696pc on the secondary market before the auction.

After the auction, Spanish bonds erased declines. The yield on the five-year benchmark fell 27 basis points to 4.69pc, with the 10-year yield declining 16 basis points to 5.53pc, the lowest in more than a week. That narrowed the gap with German equivalents to 359 basis points from as high as 382 basis points before the sale.

The auction marked the second time in a week that Spain managed to sell more bonds than targeted, easing concern that the spread of the region's debt crisis would make it harder to finance the country's rising debt.

Prime Minister-elect Mariano Rajoy pledged "important decisions" next week at his first cabinet meeting to tame public finances and end the country's three-year economic slump.

Demand for the 10-year bond was 2.16 times the amount sold, compared with 1.76 in October, while investors offered 1.99 times the amount of the four-year bonds sold, compared with 2.83 on December 1, and the bid-to-cover for the April 2020 notes was 1.52 compared with 2.01 times in September.

In a bid to convince investors they will deliver the region from its two-year debt crisis, euro-region leaders agreed on tighter budget rules and added €200bn to their bailout fund after all-night talks in Brussels on December 9.

The fiscal accord also plans to start a €500bn rescue fund next year and dilutes a demand that bondholders shoulder losses in rescues amid concern that Italy and Spain may succumb to the debt crisis that brought Greece to the brink of bankruptcy.

Meanwhile, IMF managing director Christine Lagarde said the European debt crisis is growing to the point that it won't be solved by one group of countries.

Lagarde said that if countries don't work together, the world will face a situation similar to the 1930s, before the world slid into World War II.

"There is no economy in the world, whether low-income countries, emerging markets, middle-income countries or super- advanced economies that will be immune to the crisis that we see not only unfolding, but escalating at a point where everybody would actually have to focus on what it can do," Lagarde said. (Bloomberg)

Irish Independent

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