Bloomberg News

Spain Beats Maximum Target in First 2013 Debt Sale

January 10, 2013

Spain’s 10-year borrowing costs fell below 5 percent for the first time since March after it overshot its maximum target at its initial 2013 debt sales.

The Madrid-based Treasury raised 5.82 billion euros ($7.6 billion) in the sale of three bonds, including a new two-year security with so-called collective-action clauses. Beating a maximum target of 5 billion euros, it said it covered 4.8 percent of its planned 2013 medium and long-term debt sales.

Spanish bonds are slumping as the Treasury’s funding needs have risen with most Spanish regions locked out of markets and a deepening recession blunting budget deficit cuts. Spain aims to raise net issuance by 24 percent this year, with a net target of 71 billion euros of bonds and bills, up from 57.1 billion euros of debt last year, when it sold 55 percent more than planned.

“Market confidence is coming back,” said Mohit Kumar, head of European fixed-income strategy at Deutsche Bank AG in London in a interview with Bloomberg Television. “As long as there is a reasonable amount of support from domestic investors, yields will not rise.”

Yields Decline

At 4.947 percent at 1:07 p.m. in Madrid, the yield on the nation’s 10-year benchmark bond today completed its longest period of sustained decline since the euro debt crisis started in 2010. Over the last five months and a half, the yield has shed around 2.8 percentage points, compared with a 1.79 percentage point drop over about two months between November 2011 and March 2012.

That compares with a euro-era record of 7.75 percent before European Central Bank President Mario Draghi pledged to save the euro on July 26. The program the ECB has since presented, and which is known as OMT, would consist of debt purchases on the secondary markets for nations requesting aid from the EU’s ESM rescue-fund. The spread with similar German maturities narrowed by as much as 16 basis points to 3.45 percentage points.

“On a relative-value basis, I think this part of the world is worth investing in,” Andrew Bosomworth, managing director at Pacific Investment Management Co. told Bloomberg Television. “When you stack up some of these countries like Spain and Italy against the other alternatives in global fixed-income they are looking like pretty good yields.”

‘No Imminent Concern’

Spain’s 2015 note yielded 2.476 percent, compared with 3.282 percent the last time a similar maturity was sold on Oct. 4, the 2018 bond 3.988 percent, compared with 4.680 percent the last time it was sold on Nov. 8, and the 2026 bond 5.555 percent, compared with 5.593 percent on the secondary markets before the sale.

Demand for the 2015 bond was 2.07 times the amount sold, compared with 2.03 in October, while the bid-to-cover ratio was 2.59 for the 2018 bond, compared with 1.57 in November. For the 2026 notes it was 2.85.

“Today’s auction reflects there’s no imminent concern Spain might go down the same road as Portugal, Ireland or Greece,” Fadi Zaher, head of fixed-income sales and trading for Barclays Wealth and Investment Management in London, said in a telephone interview. “Sentiment may dampen when budget cuts start having an impact on the bank loans’ performance and business is hurt as consumer spending is on its knees.”

In office since December 2011, Prime Minister Mariano Rajoy is hoping to avoid seeking an ECB intervention to lower Spain’s borrowing costs. The premier’s government is struggling to meet budget goals set by the European Union to tackle the second- largest shortfall in the euro area, as large as Greece’s at 9.4 percent of gross domestic product in 2011.

“International investors will continue to buy and go overweight over the coming weeks,” Justin Knight, a London- based European rates strategist at UBS AG, said in a telephone interview. “Having said that, its going to be a challenge to keep this pace of issuance up all year as the government needs to issue an average 10 billion euros a month.”

To contact the reporter on this story: Angeline Benoit in Madrid at abenoit4@bloomberg.net

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


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