Spain Meets Target at Bond Auction, Borrowing Costs Rise

Photographer: Angel Navarrete/Bloomberg

The Madrid skyline. Close

The Madrid skyline.

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Photographer: Angel Navarrete/Bloomberg

The Madrid skyline.

Spain sold 2.54 billion euros ($3.3 billion) of bonds, just above the maximum target for the auction, and its borrowing costs rose. Bonds declined after the sale.

The Treasury sold its 10-year benchmark bond at an average yield of 5.743 percent, compared with 5.789 percent on the secondary market before the sale and 5.403 percent when it last sold them in January. It sold two-year securities at 3.463 percent.

Demand for the 10-year debt was 2.42 times the amount sold, compared with 2.17 at the Jan. 19 sale, and the bid-to-cover for the bonds maturing in October 2014 was 3.28.

“Expectations were centered on a good auction, and it was a mixed auction,” Peter Chatwell, a fixed income strategist at Credit Agricole said in a telephone interview.

Today’s auction was the first Spanish bond sale since the Treasury sold near the minimum target of three- and five-year bonds on April 4 as the effect of European Central Bank’s unlimited three-year lending to banks started to fade. Spain’s 10-year yield has climbed about 40 basis points since then.

“It doesn’t seem that all the cash has been spent but perhaps the willingness is not there to support these markets on the scale that was happening in January and February,” Chatwell said.

Photographer: Angel Navarrete/Bloomberg

A Spanish national flag flies above the headquarters of the Madrid Stock Exchange in Madrid. Close

A Spanish national flag flies above the headquarters of the Madrid Stock Exchange in Madrid.

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Photographer: Angel Navarrete/Bloomberg

A Spanish national flag flies above the headquarters of the Madrid Stock Exchange in Madrid.

ECB Lending

The ECB lent more than 1 trillion euros to banks in December and February, leaving lenders flush with cash and underpinning demand for government bonds. Spanish bank holdings of local debt surged to 220 billion euros in January from 178 billion euros in November, Treasury data shows, while foreign investors’ holding dropped.

Spanish 10-year bonds fell after the auction, with the yield rising to 5.868 percent at 10:52 a.m. in Madrid. The Ibex 35 main share index fell 0.5 percent.

Spain has taken advantage of the ECB’s liquidity measures to step up debt sales in the first months of the year, and had sold 47 percent of its planned issuance by April 4, it said yesterday. It faces 11.9 billion euros of bond redemptions in April, 12.7 billion euros in July, and 20.2 billion euros in October, Treasury data show.

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

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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