Bloomberg News

Spain Sells $5.4 Billion of Bonds, Just Below Maximum Target

September 15, 2011

Sept. 15 (Bloomberg) -- Spain sold 3.95 billion euros ($5.44 billion) of bonds, just below its maximum target, and demand for the securities rose as the European Central Bank supports the nation’s debt market.

The Treasury sold bonds due on Oct. 31, 2020 to yield an average 5.156 percent, compared with 5.2 percent when they were last issued on Feb. 17, and 5.196 percent on the secondary market before the sale. Securities maturing in April 2020 yielded an average 5.006 percent and bonds due in July 2019 yielded 4.969 percent, the Bank of Spain said.

Demand for the Oct. 2020 debt was 1.99 times the amount sold, compared with 1.54 at the February auction. The bid-to- cover ratio was 2.01 for the April 2020 bonds and 2.17 for the July 2019 securities. The Treasury set a maximum target of 4 billion euros for the sale.

“Demand was decent, although the pricing wasn’t marvelous,” Chiara Cremonesi, a strategist at UniCredit AG in London, said in a telephone interview. “The yields are still under pressure after the auction -- it’s difficult to absorb supply in this market.”

Spain’s borrowing costs have fallen since the European Central Bank started propping up its bond market on Aug. 8. As part of their efforts to stem the spread of the sovereign debt crisis, German Chancellor Angela Merkel and French President Nicolas Sarkozy said late yesterday they’re “convinced” Greece will stay in the euro area.

The yield on Spain’s benchmark 10-year bond, which reached a 6.3 percent euro-era high on July 18, rose to 5.407 percent after the auction, from 5.358 percent yesterday. That pushed the spread over German bonds to 350 basis points, from 348 basis points yesterday.

Lack of Unity

“The European Central Bank credit card is running out, the involvement of private investors in Greece remains hanging in the air and euro-zone leaders are showing no unity,” Fadi Zaher, a fixed-income strategist at Barclays Wealth in London, said before the auction.

Divisions among European leaders on aiding Greece and helping Spain and Italy avoid being engulfed by the debt crisis are sapping demand for those nations’ bonds. Greek Prime Minister George Papandreou’s latest offer of increased austerity is failing to convince investors the country can avoid a default. Spanish Prime Minister Jose Luis Rodriguez Zapatero is trying to cut a budget deficit that’s three times the European Union limit and avoid following Greece, Portugal and Ireland into a bailout.

Italy’s Treasury sold 3.9 billion euros of five-year bonds on Sept. 13, with yields rising to 5.6 percent compared with 4.93 percent when similar-maturity securities were sold on July 14. Demand was 1.28 times the amount offered, down from 1.93 times at the last sale.

Risk to Rating

Spain’s credit rating faces risks “on the downside” as growth slows and regional governments fall behind schedule on deficit-reduction targets, Fitch Ratings Director Douglas Renwick said in a telephone interview on Sept. 13.

Fitch rates Spain AA+ with a “negative” outlook, and Renwick said weaker growth, failure to meet deficit targets or larger-than-forecast use of public funds to rescue banks could be “clear triggers for the rating.” Moody’s Investors Service has an Aa2 rating on Spain and Standard & Poor’s rates it AA.

Zapatero said yesterday that market tension may affect the government’s growth forecast. Still, he expects quarterly growth rates in the third and fourth quarters to be “similar” to the 0.2 percent expansion in the three months through June.

Investors are also concerned about Spanish banks’ access to wholesale debt markets. Spanish banks’ borrowings from the ECB surged to 69.9 billion euros in August, an 11-month high, from 52.05 billion euros in July, the Bank of Spain said yesterday.

--With reporting by Todd White in Madrid. Editors: Andrew Davis, Jeffrey Donovan

To contact the reporter on this story: Angeline Benoit in Madrid at Emma Ross-Thomas in Madrid at

To contact the editor responsible for this story: Craig Stirling at

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