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

Spain, Ireland and Greece auctioned almost 10 billion euros ($13 billion) of debt, while Hungary sold less than planned, as investors favored nations backstopped by the European Union’s 750 billion-euro aid package.

The yield premiums investors demand to hold the debt of the three euro-region nations, all covered by the EU lifeline, instead of benchmark German bonds fell following the sales, while the Hungarian yield spread with bunds rose. Prime Minister Viktor Orban’s government sold 35 billion forint ($157 million) of three-month bills, 10 billion forint less than planned.

Borrowing costs among the euro-region’s high-deficit nations have dropped from peaks in May after the EU devised the financial backstop in return for government-austerity measures. Hungary has refused more cuts, prompting the International Monetary Fund to break off talks over its 20-billion-euro aid program on July 17. That sent bond yields higher and the forint to a 14-month low.

“Although Hungary is in the European Union, it’s a non- euro country,” said Christoph Kind, head of asset allocation at Frankfurt-Trust, which manages $17 billion. “The market seems to be much more convinced following the bailout that the euro zone is working and the peripheral countries will be able to finance their debt.”

The bonds of euro-region peripheral members outperformed German debt as concern eased the countries will struggle to finance their deficits. Ireland had the area’s largest shortfall at 14.3 percent of gross domestic product last year, followed by Greece at 13.6 percent and Spain at 11.2 percent.

Spreads Narrow

The spread between Irish and German 10-year bonds fell seven basis points to 277 basis points. The spread between Spain and Germany narrowed five basis points to 171 basis points, the least in a month. The Greek spread with bunds also declined.

Greece sold 1.95 billion euros of 13-week bills, its second sale in a week, raising money to pay 4.5 billion euros of short- term debt maturing this month. Greece has no bonds due until next year.

Ireland sold six- and 10-year bonds, with investors bidding for 3.6 times the 2016 securities offered, compared with 3.1 times at a sale in June. The debt agency said the government is now fully funded until the second quarter of next year.

‘Losing Steam’

Spain sold 6 billion euros of bills, the maximum target for the auction, with increased demand pushing down borrowing costs. The government sold 4.25 billion euros of 12-month bills at an average yield of 2.221 percent, compared with 2.303 percent at the last sale on June 15. Demand was 1.95 times the amount sold, versus 1.49 times in June. It also auctioned 18-month securities.

“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.”

Hungary paid 5.47 percent to sell the bills, the highest level since March 2.

The IMF and EU ended talks with government officials without endorsing Hungary’s plans for controlling its budget deficit. The forint fell to the lowest since April 2009.

To contact the reporters on this story: Andrew Davis in Rome at abdavis@bloomberg.net; Anchalee Worrachate in London at aworrachate@bloomberg.net

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