Spain sold 7.15 billion euros ($9.21 billion) of bonds, half to its pension reserve fund in a private sale, as it shores up financing amid efforts to avoid a European bailout.
The country sold 3.88 billion euros of debt at an auction, exceeding the maximum target of 3.5 billion euros. In a separate transaction it also sold 3.27 billion euros of notes maturing in Sept. 2017 to the welfare reserve fund at a yield of 4.792 percent, according to the official gazette and a spokesman at the Economy Ministry.
The Treasury has already sold all the bonds it had planned to issue this year, and is pressing ahead with auctions to finance its needs for 2013. The private placement with the state’s 67 billion-euro pension reserve fund, which has traditionally bought debt at auctions, comes after the government also chose a private sale to raise money for its regional bailout fund earlier this year.
“The private placement money may be used for the regional lending fund or to go toward the overshooting of the central government deficit this year,” Gianluca Ziglio, a strategist at UBS AG in London said in a telephone interview. “Spain has a lot of financing that still has to be accounted for, which the market would probably struggle to take down, so they are trying to find other ways to cover it.”
The Economy Ministry spokesman said the fund was reinvesting following a redemption. The fund can only invest 500 million euros per issue at each bond auction, making a private placement more convenient, he said. A spokeswoman for the Labor Ministry, which runs the social-security fund, said it was investing excess liquidity, without giving details, and declined to say why it didn’t buy the debt at auctions.
The reserve has almost doubled its holdings of Spanish debt since 2008 as declining demand for the nation’s bonds prompted it to start replacing German, French and Dutch debt with Spanish equivalents.
The Treasury set out to sell 86.4 billion euros of medium- and long-term debt this year and after today’s sale had sold 105 percent of that amount, it said in a statement. When the government agreed in July to bail out the regions with as much as 18 billion euros, it said it would keep its auction calendar unchanged and raise the funds via a private placement among Spanish banks and a 6 billion-euro loan via the state lottery, which has still to be completed.
Even as the government says it will meet its budget-deficit goal of 6.3 percent of gross domestic product this year, economists expect a 7.1 percent shortfall, according to data compiled by Bloomberg, increasing potential borrowing needs.
Prime Minister Mariano Rajoy continues to deliberate over whether to seek a European bailout that would allow the European Central Bank to buy Spanish bonds. He has said since Aug. 3 he would consider seeking a rescue, which would be the second after his government agreed to a 100 billion-euro credit line for the nation’s banks in June.
At the auction today, the Treasury sold notes maturing in 2015 at 3.617 percent, compared with 3.660 on Nov. 8. The current five-year benchmark was sold to yield 4.477 percent, compared with 4.525 percent on the secondary market before the sale and 4.766 percent at an auction in October. Bonds maturing in 2021 yielded 5.517 percent.
Demand was 2.09 times the amount sold for the 2015 bonds, down from 2.83 times on Nov. 8. It was 2.61 for the five-year notes, from 2.47 times on Oct. 4, and 1.77 for the 2021 bonds.
“Today’s Spanish sale was comfortable,” Raj Badiani, an economist at IHS Global Insight said in a note. “We continue to argue that the calmer Spanish sovereign financing environment is a temporary respite, given the profound economic and fiscal strains.”
The 10-year benchmark bond yield declined to 5.615 percent at 4:40 p.m. in Madrid from 5.709 percent yesterday. Spain’s borrowing cost have fallen from a euro-era record of 7.75 percent on July 25, before ECB President Mario Draghi first signaled the bank’s willingness to intervene in markets when he pledged to do whatever it takes to defend the euro.
To contact the reporters on this story: Emma Ross-Thomas in Madrid at email@example.com; Emma Charlton in London at firstname.lastname@example.org
To contact the editor responsible for this story: Craig Stirling at email@example.com