Bloomberg News

France, Spain Sell EU12.5 Billion of Bonds as ECB Stokes Demand

February 02, 2012

Feb. 2 (Bloomberg) -- France and Spain sold 12.5 billion euros of ($16.4 billion) of bonds, with borrowing costs falling in the latest sign the European Central Bank’s increased lending is stoking investor appetite for the region’s debt.

France sold 7.96 billion euros of six- eight- and 10-year debt at the top of its planned range. Spain sold 4.56 billion euros of bonds maturing in 2015, 2016 and 2017, just above its target for the sale.

The ECB’s three-year lending program, dubbed LTRO, is underpinning demand for the region’s sovereign debt even as policy makers struggle to forge an agreement on a second bailout for Greece. The Greek government needs to reach a deal and secure a second European Union-led bailout by March 20, when it faces a 14.5 billion-euro bond payment.

“The psychological boost provided by the LTRO appears to have allayed some of the fears stemming from the perceived consequences of a Greek default,” said Nicholas Spiro, of Spiro Sovereign Strategy in London.

Demand for France’s benchmark 10-year bond was 1.71 times the amount sold, compared with a bid-to-cover ratio of 1.64 on Jan. 5, said Agence France Tresor, the country’s debt-management body. For Spain’s 2015 notes, demand was 1.63 times the amount sold, compared with 1.8 times the last time they were sold in January. It rose to 3.57 from 3.24 on the 2016 notes.

Sale Details

France sold 5.698 billion euros of debt maturing in April 2022 at an average yield of 3.13 percent, less than the 3.29 percent for the bond due October 2021 at the previous sale on Jan. 5. France also sold six and eight-year debt, with yields falling on all maturities.

The average yield on the Spanish 2016 bonds was 3.455, compared with 4.021 percent at the Jan. 19 auction and 3.527 percent on the secondary market before the sale.

The ECB program is “a positive among a number of positives and negatives,” said Padhraic Garvey, head of developed market debt at ING Bank NV in Amsterdam. “We’re going through a period of risk-on.”

ECB President Mario Draghi announced the three-year-loans program in December. A similar offer will be made on Feb. 28.

Spanish Prime Minister Mariano Rajoy said on Jan. 30 that the extraordinary facility was “useful” for Spain’s sovereign debt, after Banco Bilbao Vizcaya Argentaria SA Chairman Francisco Gonzalez said longer-term ECB lending would allow banks to buy more public debt.

--Editors: Vidya Root, Andrew Davis

To contact the reporter on this story: Mark Deen in Paris at markdeen@bloomberg.net Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net

To contact the editor responsible for this story: Vidya Root at vroot@bloomberg.net


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