Spain 10-Year Debt Costs Lowest Since 2011 as It Funds 2013

Photographer: Jock Fistick/Bloomberg

Prime Minister Mariano Rajoy continues to deliberate over whether to seek aid from Europe’s ESM rescue-fund, a move that could trigger ECB purchases on secondary debt markets. Close

Prime Minister Mariano Rajoy continues to deliberate over whether to seek aid from... Read More

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Photographer: Jock Fistick/Bloomberg

Prime Minister Mariano Rajoy continues to deliberate over whether to seek aid from Europe’s ESM rescue-fund, a move that could trigger ECB purchases on secondary debt markets.

Spain auctioned 10-year debt at the lowest in more than a year as the nation raises funds for 2013, buying Prime Minister Mariano Rajoy time to mull a bailout.

The Treasury sold its 10-year benchmark at 5.29 percent, the least since September 2011 and down from 5.458 percent on Oct. 18. The treasury also sold its three-year benchmark bond at 3.39 percent, compared with 3.617 percent on Nov. 22 and 2019 bonds at 3.39 percent. The Treasury sold 4.25 billion euros ($5.6 billion) of the securities, shy of its maximum target of 4.5 billion euros.

Demand was 2.29 times the amount offered for the 2022 notes up from 1.88 times on Oct. 18 and twice the amount of 2015 bonds, down from 2.09 times on Nov. 22. The bid-to-cover ratio was 2.46 for the 2019 bonds.

Spain has retained market access and avoided a sovereign bailout as it frontloaded sales when borrowing costs were at their lowest earlier this year. Its 10-year debt rose a fourth day yesterday after European finance chiefs meeting in Brussels voiced confidence a Greek government bond buyback will be successful this week.

ECB Policy

The yield on the 10-year benchmark bond rose 4 basis points after the sale to 5.344 percent at 10:58 a.m. in Madrid. That compares with a euro-era record of 7.75 percent on July 25, a day before European Central Bank President Mario Draghi first signaled the ECB’s willingness to intervene in markets when he pledged to do whatever it takes to defend the euro. The spread with similar German maturities widened to 396 basis points.

“The lower yield on the 10-year note is a further illustration of the enduring signalling effect of the ECB’s bond-buying program,” Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, said in an e-mail. “The rally in Spanish debt not only looks overdone but is becoming more and more detached from economic fundamentals.”

Rajoy continues to deliberate over whether to seek aid from Europe’s ESM rescue-fund, a move that could trigger ECB purchases on secondary debt markets. A rescue would be the second after his government agreed to a 100 billion-euro credit line for the nation’s banks in June.

“The importance of central bank policy cannot be understated as yields have fallen markedly following several initiatives over the last year,” Peter Goves, a London-based fixed-income strategist at Citigroup Inc., wrote in an e-mailed report yesterday. “The real test for non-core markets will be when issuance picks up in the first quarter next year.”

The Treasury is scheduled to return to the markets three times this month, on Dec. 11, Dec. 13 and Dec. 18, as it faces a 2013 gross debt issuance program of 207 billion euros, up from 192 billion planned for 2012. The figure has yet to be updated with the regions’ needs, estimated at a minimum 23 billion euros by Rajoy’s ruling People’s Party. The government pledged the state will fund them as long as they remain shut out of markets.

To contact the reporter on this story: Angeline Benoit in Madrid at abenoit4@bloomberg.net

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

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