Spain, Ireland, Greece Sell Debt as `Funding Pressure’ Eases


Bloomberg | Jul 20, 2010

Spain, Ireland and Greece sold almost 10 billion euros ($13 billion) of debt, with demand rising for shorter-dated securities, on optimism the European Union’s aid programs will contain the region’s fiscal crisis. Hungary raised less than planned at a sale of three-month bills, triggering a decline in the forint. Greece, which activated an EU-led bailout package in May to avoid default, auctioned 13-week bills, with investors bidding for 3.85 times the amount on offer, compared with a bid-to-cover ratio of 3.64 times at a sale of 26-week securities a week ago. Spain and Ireland also sold debt.

“Overall funding pressure is losing steam,” said David Schnautz, a fixed-income strategist at Commerzbank AG in London. “We expect the peripheral markets to enjoy even more potential outperformance against the core. Obviously we still have this event risk looming with the banks’ stress tests.” Concern that Europe’s high-deficit countries wouldn’t be able to meet their financing needs pushed yield premiums to euro-era records and led the EU to design a 110 billion-euro bailout for Greece and a broader 750 billion-euro backstop for the region. The debt crisis prompted governments across Europe to impose additional austerity measures to convince investors they were serious about taming their deficits.  

Rating Cut

Ireland, with the euro-region’s biggest budget shortfall, sold 1.5 billion euros of six- and 10-year bonds today. Demand for the shorter-maturity debt was 3.6 times the amount offered, up from 3.1 times at a June auction. The auction came a day after Moody’s Investors Service cut the country’s credit rating one level to Aa2, citing the government’s “significant loss of financial strength.” The yield premium investors demand to hold Irish 10-year bonds instead of similar-maturity German bunds, the region’s benchmark government security, fell nine basis points to 275 basis points. The yield difference, or spread, between Spain and Germany narrowed three basis points to 173 basis points, the least in a month. The Greek 10-year spread with bunds also fell.

Hungary was the one country that struggled to sell debt. Three days after the International Monetary Fund suspended talks over the new government’s refusal to impose more austerity; Hungary sold 35 billion forint ($156 million) of three-month bills, 10 billion less than planned. The yield rose to 5.47 percent, from 5.28 percent at a sale a week ago. The forint weakened 0.2 percent to 290.11 per euro as of 1:31 p.m. in Budapest, after advancing 0.4 percent before the auction.

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