Bloomberg News

Spain Sells Twice Goal at Bond Auction as Funding Costs Fall

January 13, 2012

(Updates markets in fourth paragraph, comments by analysts in ninth and 12th. For more on the euro crisis, see EXT4.)

Jan. 12 (Bloomberg) -- Spain sold 10 billion euros ($13 billion) of bonds, twice the target for the sale, while Italy sold 12 billion euros of bills, easing concerns the countries would struggle to finance their debts and sending bonds and the euro higher.

Spain sold the new benchmark note, which matures in July 2015, to yield 3.384 percent, the Bank of Spain said in Madrid. That compared with 5.187 percent the last time similar maturity debt was sold in December. The Treasury also sold auctioned maturing in April 2016 and December 2016, and those yields also declined.

Italy’s Treasury sold one-year bills at 2.735 percent, less than half 5.952 percent paid on similar-maturity securities on Dec. 12. It also sold 136-day bills to yield 1.644 percent.

Spain’s benchmark 10-year bond yield declined 16 basis points to 5.157 percent after the sale at 12:25 p.m. Madrid time, the lowest in more than a week. Italy’s 10-year yield slipped 34 basis points to 6.640 percent, while the yield on Italian two-year debt plunged 54 basis points to 4.165 percent.

ECB Efforts

Italian Prime Minister Mario Monti and Spanish premier Mariano Rajoy are fighting to convince investors that they can put their nations’ finances in order and avert being engulfed by the sovereign debt crisis. The European Central Bank, which meets today, started lending to banks for three years last month in a measure Madrid-based Banco Bilbao Vizcaya Argentaria SA had said would allow banks to buy more government debt.

“A robust set of results which will likely underpin speculation the ECB’s backdoor financing of peripheral sovereigns via the long term refinancing operations will prove effective,” Richard McGuire, a senior fixed income strategist at Rabobank International in London said in an e-mail.

That may boost appetite for risk and narrow the gap between borrowing costs in Europe’s periphery and Germany, he said.

The gap between Spanish and German 10-year yields fell to 331 basis points at 12:27 p.m. in Madrid from 351 basis points yesterday. Italian bonds yielded 480 basis points more than equivalent German securities, compared with 517 basis points yesterday. The euro gained 0.4 percent to $1.2759.

Wise Tactic

“As tactics go, it is clear that getting as much done as quickly as possible in terms of funding a deficit goes is wise in the current environment,” Marc Ostwald, a strategist at Monument Securities Ltd., said in a note to investors.

Spain’s government, in power since Dec. 21, hasn’t said how it will reduce the budget deficit from 8 percent of gross domestic product last year to its targeted 4.4 percent this year. The economy is on the verge of a recession, Budget Minister Cristobal Montoro said yesterday as Parliament approved an initial package of cuts to tide the state over until the 2012 budget is presented in March.

Demand for Spanish benchmark securities weakened compared with previous auction. The bid-to-cover was 1.8 times, compared with 2.7 in December when similar notes were sold.

“Spain is now in a more precarious position than a year ago given the scale of its budget deficit and the deteriorating economic outlook,” Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, said in an e-mail.

The Treasury in Rome will also remain under pressure at bond auctions “as long as Italy remains the focal point for investor anxiety about the euro zone,” he said.

European leaders, who are striving to tamp down the debt crisis that began in Greece in 2009 and infected Italy, Spain and France, are setting the stage for a European Union summit at the end of the month on bolstering jobs and growth. Pressure is meanwhile growing to complete a Greek debt swap agreed on in October that is needed to put a second rescue plan in place and keep the euro area together.

German Chancellor Angela Merkel and French President Nicolas Sarkozy are scheduled to travel to Rome on Jan. 20 for joint talks with Monti, who heads the euro area’s third-largest economy. Both have expressed support for Monti’s effort to cut Italy’s debt. Sarkozy also visits Rajoy in Madrid on Jan. 16.

--Editors: Jeffrey Donovan, Andrew Davis

To contact the reporters on this story: Emma Ross-Thomas in Madrid at contact the editors responsible for this story: Craig Stirling at

Toyota's Hydrogen Man
blog comments powered by Disqus