Bloomberg News

Spain Borrowing Costs Fall as Rajoy Sees Worst of Crisis End

February 21, 2013

Spain’s borrowing costs fell at a debt sale today after Prime Minister Mariano Rajoy said the nation weathered the worst of its crisis, pushing the yield on Spain’s 10-year benchmark bond down on secondary markets.

The Madrid-based Treasury sold 4.2 billion euros of debt ($5.5 billion), more than its maximum target of 4 billion euros. The sale included Spain’s two-year benchmark, which yielded 2.54 percent, down from 2.823 percent the last time it was offered on Feb. 7.

The country also reopened its 10-year benchmark, which matures on Jan. 31, 2023. The yield on the security, which became the benchmark on Jan. 25, was 5.202 percent, compared with 5.290 percent when the previous one was last tapped in December. A 2019 note that hadn’t been sold for one year yielded 4.275 percent.

The European Commission will assess Spain’s economy tomorrow after Rajoy said the public deficit was less than 7 percent of gross domestic product in 2012, excluding European aid for banks. The government has lobbied for easing budget goals after the country escaped a full bailout last year.

Little Dispersion

“The Spanish auction went really well as the Treasury issued more than the maximum announced size,” Aditya Chordia, a strategist at JPMorgan Chase Bank in London, wrote in a research note. The sale showed “little dispersion in bidding behavior,” he said.

Spanish bonds rose after the auction, pushing the yield on the 10-year benchmark as low as 5.17 percent at 11:15 a.m. in Madrid. That compares with a euro-era record of 7.75 percent in July, before the European Central Bank pledged to backstop the euro. The spread with similar German maturities was little changed at 359 basis points.

Demand for the 2015 note was 3.69 times the amount sold, up from 2.21 on Feb. 7, while the bid-to-cover ratio was 1.6 for the 2023 security, down from 2.29 in December. It was 2.54 for the 2019 bond.

“Overall this is a strong auction result, with higher allocation to the 10-year versus both the two-year and six-year bonds,” Ioannis Sokos, a fixed-income strategist at BNP Paribas SA in London, said in an e-mailed comment.

Spain’s deficit target for 2012 set by euro-region finance chiefs was 6.3 percent of GDP, after it registered a shortfall of 9.4 percent in 2011. Economists surveyed by Bloomberg News forecast a deficit of 8 percent. That’s in line with the commission’s last projection, which also saw Spain’s public debt load rising above the euro-area average next year for the first time since the start of the euro.

To contact the reporters on this story: Angeline Benoit in Madrid at abenoit4@bloomberg.net; Jeevan Jyothyprakash in London at jjyothyprak2@bloomberg.net

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


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