Spain Sells Less Than Maximum Amount of Bonds at Auction as Demand Drops

Spain sold 3.85 billion euros ($5.4 billion) of bonds maturing in 2025 and 2032, less than the maximum target as demand fell from the previous auction. Bonds declined after the sale.

Spain sold 2.91 billion of bonds maturing July 2025 at an average yield of 4.541 percent, the Bank of Spain said, compared with 5.116 percent when the securities were last sold on July 15. It also sold 941 million of bonds due July 2032, at 4.777 percent compared with a secondary-market rate of 4.806 percent before the auction. Demand for the 15-year bond was 1.44 times the amount sold, compared with 2.57 times at the July auction, while the bid-to-cover ratio for the 2032 paper was 1.42.

“The result looks mixed: demand seems weaker than at the previous auctions,” said Chiara Cremonesi, a fixed-income strategist at UniCredit Bank AG in London. She estimates Spain still has to sell about 16 billion euros of debt this year, requiring a “slight speed-up in the pace of issuance.”

“Investors will continue to carefully monitor Spain over the next few months,” she said in a note.

Spain’s budget deficit is set to be the second-largest in the euro region this year, at 9.3 percent of gross domestic product, according to government forecasts. Next year, when it aimed to cut the deficit to 6 percent -- in line with France’s projected shortfall -- it faces redemptions amounting to almost 20 percent of its total outstanding debt, Treasury data showed.

‘Not Impressive’

The yield on the 2032 bond on the secondary market rose to 4.835 percent after the auction from 4.791 percent yesterday. The extra yield investors demand to hold Spanish benchmark bonds instead of German equivalents rose to 167.1 basis points from 161.8 basis points yesterday.

“Not impressive results, but not worrying either,” said Ioannis Sokos, an interest-rate strategist at BNP Paribas in London. “If there was any news this week it’s positive, as the parliament passed the budget.”

Spain’s parliament backed the government’s 2011 budget bill yesterday in a preliminary vote, clearing the way for the deepest budget cuts in three decades and for the Socialist government to complete the remaining year and a half of its term. Prime Minister Jose Luis Rodriguez Zapatero shuffled his Cabinet after the vote, promoting a new deputy prime minister and foreign minister.

The 2032 bond was added to the quarterly borrowing schedule on Oct. 15. The Treasury aimed to increase the bond’s liquidity and the decision doesn’t reflect extra borrowing needs, said an official at the Finance Ministry who declined to be identified in line with policy.

To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net

To contact the editor responsible for this story: John Fraher at jfraher@bloomberg.net

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