Bloomberg News

Spain Meets Bond Auction Upper Goal as Bernanke Signals QE Exit

June 20, 2013

Spain met its maximum target at a bond auction even as its 10-year borrowing costs rose after U.S. Federal Reserve Chairman Ben S. Bernanke said yesterday that policy makers may end asset purchases in mid-2014.

The Madrid-based Treasury sold 4.02 billion euros ($5.31 billion) of debt, in line with its maximum target of 4 billion euros. A five-year note was sold to yield 3.592 percent, down from 3.598 percent at a sale on April 4. Its nine-year benchmark yielded 4.353 percent, down from 4.477 percent on April 4, and a 10-year bond fetched 4.765 percent, up from 4.517 percent on June 6.

Spanish government bonds have fallen in the past month amid volatility on financial markets as investors wait to see at what pace the Fed withdraws liquidity, while the Bank of Japan supplies more. The yield on Spain’s 10-year benchmark bond was 58 basis points higher than a month ago at 4.778 percent at 10:57 a.m. in Madrid.

Demand for Spain’s 2018 notes was 2.15 times the amount sold, down from 4.09 in April. The bid-to-cover ratio was 1.96 for the 2021 securities, down from 2.06, and 1.84 for the 2023 bonds, down from 2.52 in June.

“Binary debates on the degree of liquidity supply from central banks are bringing a considerable degree of volatility,” said Richard McGuire, a senior fixed-income strategist at Rabobank International in London. “We can’t assume therefore that every auction from here will be a positive for peripheral countries.”

Real-Estate Crash

European Central Bank President Mario Draghi’s pledge to do “whatever it takes” to defend the euro has shielded Spain from seeking more European aid after it was granted access to as much as 100 billion-euro a year ago to support its banks following a real-estate crash.

The yield on its 10-year benchmark bond fell below 4 percent in May for the first time since 2010, compared with a euro era high of 7.75 percent on July 25. The Treasury last week said it had covered 60 percent of its mid-and long-term gross funding needs for 2013. as the spread with similar German securities has narrowed about 325 basis points since July 2012.

To contact the reporters on this story: Angeline Benoit in Madrid at abenoit4@bloomberg.net; Levent Kucukreisoglu in London at lkucukreisog@bloomberg.net

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


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