Spain Sells 4.8 Billion Euros of Bonds, Most Since January

Spain sold 4.8 billion euros ($6.2 billion) of bonds, the most since January, as the Treasury focused on short-term notes that would be targeted for central- bank buying in the case of a bailout.

The Madrid-based Treasury sold 3.94 billion euros of a new three-year benchmark at an average yield of 3.845 percent and 859 million euros of its 10-year benchmark at an average of 5.666 percent. That was the lowest since January and compares with 6.647 percent when it was last sold on Aug. 2.

Bond yields, which have fallen since European Central Bank President Mario Draghi said on Aug. 2 he may buy debt from cash- strapped nations, were little changed from their pre-auction levels. While Prime Minister Mariano Rajoy says he continues to analyze whether to seek the bailout that would trigger ECB debt purchases, his deputy, Soraya Saenz de Santamaria, twice set out arguments in favor of a rescue this week.

“The result is decent, but it doesn’t follow that the market will react positively as it pushes back the timetable,” said Harvinder Sian, a fixed income strategist at Royal Bank of Scotland in London. “A bad auction will push Rajoy to seek a bailout, a good one means he might vacillate again.”

The yield on the benchmark 10-year bond was 5.723 percent after the sale from 5.724 percent beforehand and 5.693 percent yesterday. That pushed the gap over equivalent German securities to 414 basis points from 407 basis points yesterday.

As foreign investors withdraw from Spain, local lenders have picked up the slack, data from the Treasury show. Spanish banks held 32 percent of the outstanding debt in July, up from 17 percent at the end of last year, while non-residents cut their holdings to 34 percent from 50 percent over the same period. Helping fund those purchases, Spanish banks, which are still reeling from real-estate losses, have increased their dependence on ECB financing to record levels, Bank of Spain 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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