Spain sells bonds today for the first time since announcing a 2012 budget that shows public debt surging to a record, though the fading impact of European Central Bank three-year loans to lenders may crimp demand.
The Treasury will auction bonds maturing in 2015, 2016 and 2020, and release the results at about 10:40 a.m. in Madrid. All three securities have been auctioned before. The 2015 bond is one of the Spain’s most liquid with 19.3 billion euros ($25.7 billion) issued, according to data compiled by Bloomberg.
“It won’t be a complete disaster, but I’d be surprised if we saw the strength of the auctions we’ve seen in the past,” Harvinder Sian, a senior interest-rate strategist at Royal Bank of Scotland Group Plc in London, said by telephone.
The auction is the first since Budget Minister Cristobal Montoro presented this year’s budget and said public debt will rise to 79.8 percent of gross domestic product as the government makes the deepest budget cuts in three decades. That narrows the gap between Spain’s debt load and the European Commission’s projected average for the euro area to 10.6 percentage points, compared with 30.1 points in 2007 when Spain used budget surpluses to reduce borrowing. In its forecast, the commission put Spain’s debt burden at 73.8 percent of GDP this year.
Spain’s financing costs have been held down by the ECB’s 1 trillion euros of unlimited three-year loans to banks, some of which have been recycled into high-yielding government debt. Yields have declined 39 basis points since ECB President Mario Draghi announced the policy on Dec. 8. Spain-based banks’ holdings of government debt jumped to 220 billion euros in January from 178 billion euros in November.
The yield on Spanish 10-year bonds rose 10 basis points to 5.45 percent yesterday, while the two-year yield increased 6 points to 2.54 percent and the 30-year gained 11 points to 6.14 percent. The Treasury will favor medium-term securities over 15- year and 30-year bonds this year as it seeks to sell 36.8 billion euros of net debt, or 186.1 billion euros in gross terms. That will reduce the average maturity of outstanding debt to between 6.2 and 6.4 years, according to a spending plan sent to Parliament yesterday.
Spain plans to make almost 29 billion euros of interest payments in 2012, up from 22 billion euros a year earlier. That’s equivalent to about 2.7 percent of GDP and is about the same amount the government will spend on unemployment benefits, according to the budget. The unemployment rate rose to 23.6 percent in February, according to European Union data.
The budget is based on bond yields at current levels, Montoro said. Budget documents project Spanish bond yields in 2012 will remain near the levels of February, when the yield on the country’s 10-year bond averaged 5.12 percent.
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