Bloomberg News

Spain Yields Fall at Bill Auction That Exceeds Target

July 17, 2012

A Spainish National Flag

Spain sold 3.56 billion euros ($4.38 billion) of bills, exceeding a target of 3.5 billion euros, and borrowing costs fell after the government announced its fourth austerity package to contain the region’s financial crisis. Photographer: Angel Navarrete/Bloomberg

Spain sold 3.56 billion euros ($4.4 billion) of bills, exceeding a target of 3.5 billion euros, and borrowing costs fell after the government announced its fourth austerity package to contain the region’s financial crisis.

The Treasury in Madrid sold 12-month bills at an average yield of 3.918 percent, compared with 5.074 percent at the last auction on June 19, and 18-month bills at an average rate of 4.242 percent, compared with 5.107 percent last month.

Demand for the 12-month securities was 2.23 times the amount sold, compared with 2.16 times in June, while the bid-to- cover ratio for the 18-month bills was 3.66 compared with 4.42.

Spain’s economy, already suffering the second recession since 2009 and a 25 percent jobless rate, will continue to shrink next year, the International Monetary Fund said yesterday, forecasting a 0.6 percent contraction. That may make it harder for the government to implement the deepest austerity measures on record.

The auction was “positive” Economy Minister Luis de Guindos told reporters in Madrid today. “Demand was strong, rates were lower. It showed Spain still has access to markets, which is good news.”

‘Less Anxious’

The yield on Spain’s 10-year bonds rose 2 basis points to 6.87 percent at 12:49 p.m. in Madrid after the auction. That widened the gap with similar German maturities to 5.62 percentage points, compared with a record 5.89 percentage points on June 18.

“Markets are less anxious about Spain’s near-term solvency position,” Raj Badiani, an economist at IHS Global Insight in London, said in an e-mailed note. “However, the Spanish government is short of effective domestic policy options to bring about a more dramatic fall in yields across its debt maturity range.”

The central government last week agreed to raise funds for regional governments locked out of debt markets. The Treasury will fund most of the 18 billion-euro facility to help regions finance deficits and meet debt redemptions, while the state- owned lottery will provide 6 billion euros.

The Spanish Treasury has covered 65.2 percent of the medium and long-term debt issuance it plans for this year, the Economy Ministry said in a statement following the auction.

To contact the reporters on this story: Angeline Benoit in Madrid at abenoit4@bloomberg.net; Ben Sills in Madrid at bsills@bloomberg.net

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


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