Spain's Treasury sold nearly €3.5 billion of long-term debt today at yields that helped allay fears the struggling euro zone periphery would find it hard to raise long-dated funds in tough market conditions.
The auction of €2.5 billion of Spain's 4.85 per cent bond due October 31st, 2020 and €998 million of its 4.2 per cent 2037 bond came in the middle of the Treasury's €3-4 billion target range. Both bonds saw reasonable demand, although less than in auctions over the past month.
Spain has been under intense market scrutiny since Ireland was forced to take an international bailout at the end of last year, but government moves to force reforms on its troubled saving banks and deficit reduction efforts have eased concerns. The average yield on the 10-year issue was 5.2 per cent, below the 5.446 per cent Spain paid when the same bond was last auctioned on December 16th.
The yield on the 2037 bond - last issued in February 2010, when fears that the euro zone sovereign debt crisis might spread to Spain were muted - was 5.976 per cent. That compared with a yield at auction of 5.488 per cent on a 30-year bond sold by Spain in November and which had been trading at about 6 per cent prior to today's sale.
Separately, the French Treasury sold €8.4 billion of treasury notes which were well received by the market.
Analysts said there was little surprise the Spanish bonds drew support from investors given their high yield compared with low-risk German bunds.
"It shows if you have got long-dated yields around 6 percent there's an appetite for it. Looking at the pathetic yields in Germany it's little wonder people want this Spanish paper," said Marc Ostwald, strategist at Monument Securities.
The bid-to-cover ratio for both bonds was 1.5, compared with 1.7 at December's 10-year auction.
The treasury has now sold €16 billions of medium and long-term debt this year, 17 per cent of gross debt issuance planned for 2011, having taken advantage of favourable market conditions at the start of the year.
"Considering we're only in the middle of February, they've already issued a fair chunk of their 2011 target," said Jo Tomkins, analyst at consultancy 4Cast.
"They're grabbing opportunities while they are presented and there is a little bit of oversupply, so that's probably why we've got a softer demand, especially for the 10-year."
European leaders' failure over the last month to agree a convincing mechanism to handle future regional crises has unsettled markets after a relatively calm start to 2011, pushing Portuguese 10-year yields to euro-era highs last week.
Portugal's 12-month borrowing costs rose less than expected at an auction yesterday, however, offering a respite from recent tensions.
Reuters