Spain’s borrowing costs fell to the lowest in three months at an auction today as Prime Minister Mariano Rajoy hosts European Union President Herman Van Rompuy for the first in a series of meetings aimed at solving the nation’s funding issues.
The Treasury sold 3.6 billion euros ($4.5 billion) of bills today, more than the 3.5 billion euros sought. The yield for three-month bills fell to 0.946 percent from 2.434 percent at the last sale on July 24. That’s the least paid for three month bills at auction since May 22. The rate on the six-month bills fell to 2.026 percent from 3.691 percent last month.
Yields on Spanish and Italian bonds have plunged to three- month lows on optimism the European Central Bank and the single currency’s 17 members will agree on a plan to use short-dated sovereign debt purchases to curb governments’ borrowing costs and win them time to implement fiscal changes. Rajoy meets Van Rompuy at 1 p.m. in Madrid.
Italy also saw a decline in its funding costs today when it sold 3.75 billion euros of zero-coupon and inflation-linked bonds. The Treasury priced the zero-coupon bonds to yield 3.064 percent, down almost 2 percentage points from the last sale a month ago.
“Today’s test for Italian supply had relatively good results,” Annalisa Piazza, fixed-income analyst at Newedge Group in London, wrote in a note to investors today. “More supply will come on Thursday, though, and the auction will be highly scrutinized as it will also show foreign accounts’ willingness to buy Italian paper.”
Italy sells 9 billion euros of six-month Treasury bills tomorrow followed by 7.5 billion euros of bonds on Thursday, including a 10-year security.
The yield on Spain’s benchmark 10-year bond yield rose 2 basis points to 6.4 percent at 10:50 a.m. in Madrid, down from a euro-era record of 7.75 percent on July 25. Italy’s 10-year yield gained 4 basis points to 5.75 percent.
In the Spanish auction, demand was 3.35 times the amount sold for the three-month securities, compared with 2.94 times in July. The bid-to-cover ratio for the six-month bills was 2.17, down from 3.02.
Deputy Prime Minister Soraya Saenz de Santamaria said Aug. 24 that Rajoy has a full diplomatic agenda in the coming months as “Spain is working so that mechanisms guaranteeing the euro’s irreversibility are adopted.” Rajoy will meet French president Francois Hollande on Aug. 30, German Chancellor Angela Merkel on Sept. 6, Finnish Premier Jyrki Katainen on Sept. 11 and Italian Prime Minister Mario Monti on Sept. 20-21.
“The aim is to reach a definitive solution to funding problems,” Saenz de Santamaria said. Other agenda items include a meeting with European Investment Bank President Werner Hoyer on Sept. 20, attending the general assembly of the United Nations between Sept. 24 and Sept. 26 and bilateral summit meetings with France and Italy in October.
Spain is mulling a request for a second European bailout a month after securing 100 billion euros in loans for its banks as it waits for the ECB to detail its bond-buying plan. That may not happen before Germany’s Constitutional Court rules Sept. 12 on the legality of Europe’s permanent bailout fund, two central bank officials, who declined to be identified, said last week.
Spain is likely to request more aid in mid-September from Europe’s temporary rescue-fund, the European Financial Stability Facility, given its large bond redemptions in October and the busy calendar for policy makers in September, London-based economist Andrew Benito at Goldman Sachs Group Inc. said last week.
Spain returns to the market to sell bonds on Sept. 6, the day the next ECB meeting is scheduled. The Treasury said Aug. 21 it had covered 72.7 percent of the medium and long-term debt it plans to sell this year.
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