Spain Government Sells 3.3 Billion Euros of Five-Year Debt as Yields Drop
Spain sold 3.3 billion euros ($4.2 billion) of five-year bonds as its borrowing costs dropped amid receding concern over the nation’s ability to rein in the euro region’s third-largest budget deficit. Bonds rose.
Spain sold the debt at an average yield of 2.964 percent today, compared with a yield of 3.657 percent at an auction on July 1, the Treasury said. That is also lower than the yield on the secondary market of 3.045 percent yesterday. Demand was 1.63 times the amount sold, compared with the bid-to-cover ratio of 1.7 times in July.
“It looks like a good auction,” said Cagdas Aksu, a fixed income strategist at Barclays Capital in London. “Things in Spain are gradually going in the right direction, not just on the budget but also with the stress tests for example.”
The extra yield on Spanish debt has declined from a euro- era high in June as the central government’s deficit shrinks, the largest redemptions of the year have been refinanced, and most of Spain’s lenders passed bank stress tests published in July. The government is implementing the deepest austerity measures in at least three decades, including public-sector wage cuts and an increase in sales tax, after the economy emerged from almost two years of recession in the first half.
The five-year yield on the secondary market fell to 3.026 percent today. The extra yield investors demand to hold Spanish 10-year bonds rather than German equivalents narrowed to 177.1 basis points at 11:25 a.m. in Madrid, compared with 180.9 basis points yesterday and a closing level of 221 basis points on June 16, the euro-era high.
Narrowing Deficit
The central government budget deficit narrowed to 2.4 percent of gross domestic product in the first seven months from 4.7 percent a year earlier, the Finance Ministry said on Aug. 31. The overall budget gap, which was 11.2 percent of GDP last year, more than three times the European Union limit, also includes regional administrations’ shortfalls and the balance of the social-security system, which is in surplus.
Even though it has one of the euro region’s largest deficits, Spain’s public debt amounted to 53 percent of GDP last year, lower than in Germany and less than the euro-region average of 79 percent. It has no more bond redemptions to finance for the rest of the year, Treasury data show.
Fitch Ratings cut Spain’s credit rating to AA+ on May 28, citing concerns about the economy’s ability to grow. Standard & Poor’s Ratings Services ranks Spain AA, while Moody’s Investors Service put the country’s Aaa rating on review for a possible downgrade on June 30, citing deteriorating growth prospects and the risk the government won’t meet its fiscal targets.
To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net
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