Bloomberg News

Spain Meets Maximum Target at Bond Sale as Borrowing Costs Fall

October 06, 2011

Oct. 6 (Bloomberg) -- Spain sold 4.5 billion euros ($6 billion) of bonds, meeting its maximum target, and its borrowing costs fell as the European Central Bank supported the nation’s debt on the secondary market.

The Treasury sold bonds due in April 2014 at an average yield of 3.589 percent, compared with 4.813 percent the last time they was sold on Aug. 4, the Bank of Spain said. Securities due October 2014 yielded an average 3.495 percent, compared with 4.291 percent in July and bonds maturing in April 2015 yielded 3.639 percent.

Demand for the April 2014 debt was 1.78 times the amount sold, compared with 2.14 at the August auction. The bid-to-cover ratio was 2.02 for the October 2014 bonds compared with 2.29 in July, and 2.07 for the April 2015 securities.

Spain’s borrowing costs have fallen since the ECB started propping up its bond market on Aug. 8. The ECB bought Spanish government securities yesterday, according to three people with knowledge of the transactions, helping push the yield on Spain’s 10-year bond to a one-month low.

The yield on Spain’s benchmark 10-year bond, which reached a 6.3 percent euro-era high on July 18, dipped below 5 percent to 4.983 percent, and traded at 5 percent at 11:00 a.m. in Madrid. That narrowed the spread over German bonds to 311 basis points, from 325 basis points yesterday.

“Sentiment seems to be playing in favor of Spain,” said Fadi Zaher, a fixed-income strategist at Barclays Wealth in London. “Spain’s economic outlook is making it more and more obvious the country is becoming the bridge between the euro zone’s periphery and core countries.”

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. His Socialist government has taken the deepest austerity measures in three decades, and polls say the party will lose the Nov. 20 next general election to the People’s Party’s leader Mariano Rajoy, who has also promised fiscal consolidation.

The government aims to cut the deficit to 6 percent of gross domestic product this year, from 9.2 percent in 2010, and Finance Minister Elena Salgado yesterday said that goal takes “priority” over growth in the “remaining months of the year.” GDP growth rate slowed to 0.2 percent in the second quarter from 0.4 percent in the previous three months.

--Editors: Jeffrey Donovan, Andrew Atkinson

To contact the reporter on this story: Angeline Benoit in Madrid at abenoit4@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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