Bloomberg | Jul 15, 2010
Investors bought all 3 billion euros ($3.8 billion) of 15-year bonds offered by Spain, with demand strong enough to ease concern the nation would struggle to cover debt payments after Greece’s bailout. “The Spanish auction went well,” said Chiara Cremonesi, a strategist at UniCredit Research in London. “Appetite for Spanish paper is alive.” Spain, which has to repay 24.7 billion euros of debt this month, has the third-largest deficit in the euro region and its banks are dependent on the European Central Bank for funds. Prime Minister Jose Luis Rodriquez Zapatero, risks losing power as he pushes through austerity measures including cutting workers’ wages, freezing pensions and reducing severance pay. Today’s auction raised the maximum offered at an average yield of 5.116 percent, compared with 4.434 percent at a sale of the same securities on April 22, the Bank of Spain said. Demand was 2.57 times the amount sold, compared with the bid-to-cover ratio of 1.79 in April. Spanish bonds rose and the euro strengthened. The government is hoping the publication of stress tests next week will allow its financial institutions to access capital markets. Spanish lenders borrowed a record 126.3 billion euros from the ECB in June, up 48 percent from the previous month, according to data compiled by the Bank of Spain. That compares with a drop of 4 percent to 496.6 billion euros for euro-area lenders as a whole.
The yield premium investors demand to hold Spain’s 10-year debt over comparable German bonds fell to 199.6 basis points after the auction, from 211 basis points earlier. The euro gained 0.4 percent to 1.2792 against the dollar. “People who expected the end of the world in July because of the redemptions have been proved wrong,” said Gianluca Salford, a fixed-income strategist at JPMorgan Chase & Co. in London. Spain’s auction follows Greece’s sale of Treasury bills on July 13, its first since the country accepted a three-year bailout plan from the European Union in May after its borrowing costs surged. Greece secured an interest rate at that sale below the 5 percent charged on the emergency European loans.