Spanish leaders said they can delay a decision on seeking a bailout as its bond yields ease, with their focus on ensuring any rescue doesn’t roil markets.
Prime Minister Mariano Rajoy told Parliament it’s not clear if Spain needs help as the European Central Bank’s crisis plan has cut borrowing costs. There’s no “urgency” because the ECB’s move put the Treasury in a more “comfortable” position, Deputy Economy Minister Fernando Jimenez Latorre said.
“The important thing is that when whatever assistance that is needed is requested, that it should be well received in the markets,” Jimenez Latorre told reporters in Madrid today.
Spanish 10-year bond yields have fallen about 80 basis points since ECB President Mario Draghi said on Sept. 6 the bank could buy cash-strapped nations’ debt if they seek help from the region’s government-run rescue mechanism first. Rajoy, who denied the nation would need a rescue for its banks two weeks before asking for one, risks undermining the rally by postponing the decision.
“His tactics throughout the crisis have always backfired,” Harvinder Sian, a fixed income strategist at Royal Bank of Scotland Plc in London, said in a telephone interview. “They risk the bond auctions of next week and October being the place where the market forces them to seek help.”
Spain’s 10-year benchmark bond yield fell to 5.6 percent today from 5.69 percent yesterday. That compares with 7.17 percent before Aug. 2, when Draghi first said the bank would buy bonds to stem the crisis, and 6.41 percent on Sept. 5, the day before he fleshed out the proposal. Rajoy has been saying since early August that he needs time to assess the details of the plan.
“The recent rally has been very much based around a promise of support,” Mark Dowding, a senior portfolio manager at BlueBay Asset Management, said in an interview with Bloomberg Television. “If there is procrastination, if no deal is done at the weekend, then I’m very fearful that Spanish yields may start rising quickly again.”
Spanish bonds extended their gains after Germany’s top constitutional court rejected bids to block ratification of the euro region’s permanent rescue fund.
Rajoy, who is suffering a plunge in popular support after raising taxes and cutting spending in breach of campaign pledges, dismissed suggestions from opposition Socialist leader Alfredo Perez Rubalcaba that he may postpone the decision on aid until after regional elections on Oct. 21. Rubalcaba urged Rajoy not to risk losing credibility by delaying, and cited the government’s decision to postpone the publication of the 2012 budget until after elections in Andalusia in March.
Deputy Prime Minister Soraya Saenz de Santamaria said last week that the decision couldn’t be taken quickly and European finance ministers would continue to analyze a possible rescue at their meeting in Cyprus on Sept. 14-15.
“The fall in interest rates in Spain is predicated on the market’s expectation of an ECB intervention, which entails a request for support, not on any intrinsic development in Spain,” said Gilles Moec, co-chief European economist at Deutsche Bank in London. “Rajoy has limited room for maneuver to play for time and discuss the conditions.”
The Treasury, which faces redemptions of about 29 billion euros in October, is scheduled to sell bills on Sept. 18 and Sept. 25. The agency has already sold 77 percent of the bonds it plans to sell this year, the Economy Ministry said last week.
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