Thursday 14 December 2017

Spanish bond sale nets €4bn in wake of Portugal's bailout plea

Emma Ross-Thomas and Todd White

Spain sold €4.13bn of three-year bonds and its borrowing costs fell after Portugal said it would seek a European Union bailout.

Spain sold the bonds at an average yield of 3.568pc, compared with 3.592pc when it sold debt of similar maturity on March 3, the Treasury said. Demand was 1.79 times the amount offered, compared with 3.04 times on March 3, and the amount sold compared with a maximum target of €4.5bn.

The debt sale, hours after Portuguese Prime Minister Jose Socrates said he would ask the EU for financial help, was a test of investor sentiment as Goldman Sachs Group said contagion from the sovereign debt crisis would stop at Portugal.

Spain, in an attempt to distance itself from other so-called peripheral nations, is implementing the deepest budget cuts in three decades while trying to shore up savings banks suffering a surge in bad loans.


"The fact that Portugal seeks help early reduces contagion risk," Mohit Kumar, a fixed-income strategist at Deutsche Bank in London, said. "The bonds have performed very well; any decline in Spanish bonds in the near-term is likely to come from their rich valuation rather than contagion concern."

The gap between Spanish and German 10-year borrowing costs was unchanged yesterday after the sale at 180 basis points. That compares with a euro-era record of 298 basis points on November 30 after Ireland became the second euro nation after Greece to seek a bailout. Spanish banking stocks rose, with Banco Santander gaining 2pc.

"We do not expect any other EMU sovereign to be in need of financial assistance," Francesco Garzarelli, Goldman Sachs's London-based strategist, said. He expects the spreads between the yields of Italy, Spain, Belgium and those of AAA-rated economies like Germany to "slowly compress".

Spain has foreign claims amounting to $85bn (€59bn) in Portugal, according to data from the Bank of International Settlements. Portugal accounted for 9pc of Spain's global exports in 2010. (Bloomberg)

Irish Independent

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