Spain sold 7 billion euros ($9.3 billion) of 10-year bonds via banks, data compiled by Bloomberg show, after Economy Minister Luis de Guindos said the sale generated record demand.
The security, which matures in Jan. 31, 2023, and has a 5.4 percent coupon, was sold by six banks at 365 basis points more than the mid-swap rate. That amounts to about 5.4 percent.
De Guindos today told reporters in Brussels that investors sought 24 billion euros of the bonds. “Never in the history of Spain’s Treasury has there been such a volume of demand, whether in an auction or a syndicated sale,” he said.
Spain is taking advantage of a rally in securities of so- called peripheral countries this month to fast-track debt sales as it faces a 24 percent increase in net funding needs this year. The Treasuy last week said it had covered 9.4 percent of its total planned issuance of medium- and long-term debt for the year.
The yield on Spain’s two-year benchmark bond today fell as low as 2.46 percent while it dropped to 5.002 percent for the 10-year benchmark bond. That compares with a euro-era record of 7.75 percent on July 25, before European Central Bank President Mario Draghi pledged to backstop the euro area’s fourth-largest economy.
“It’s a very successful day for Spain, given the fact that they’ve managed to issue this amount and not give up too much in terms of pricing,” said Owen Callan, an analyst at Danske Bank A/S (DANSKE) in Dublin. “We should see Spanish bonds perform well going forward. That said, Spain still has a lot to issue.”
Syndications enable countries to place bigger amounts of debt in one sale, Owen said. “It’s a slightly more expensive way of doing it, but you usually get to issue a larger chunk.”
While the Treasury resorted to several private placements in 2012, including 3.27 billion euros sold to Spain’s pension reserve fund in November, its last syndicated sale was in February, when it placed 4 billion euros of a note maturing in Jan. 31, 2022. The same note was sold in its last 10-year bond auction on Dec. 5, with a 5.290 percent average yield.
The new 10-year bond is “absolutely necessary to ensure debt sustainability,” Norbert Aul, a rates strategist at Royal Bank of Canada in London said in a telephone interview. Spain risks shortening the average duration of its debt if it continues funding itself on the same pattern as last year, Aul said.
Prime Minister Mariano Rajoy is counting on the Spanish debt rally that followed Draghi’s pledge to avoid a rescue from the euro-region’s bailout fund. The European Commission today said the nation will probably miss its deficit target of 6.3 percent of output in 2012 even if the most recent budget cuts produce their full impact in the last quarter.
Even so, de Guindos said the budget data will be positive. “What will stand out in the end is the huge effort Spain has made to reduce its public deficit in a very complicated environment,” he said. Spain’s planned austerity measures through 2014 will be sufficient, he said.
Today’s debt sales are “ a clear indication of the Spanish economy’s credibility,” de Guindos said. Spain’s short-term borrowing costs dropped at a sale of 2.8 billion euros of bills, compared with a an upper goal of 2.5 billion euros. It sold three-month bills at an average 0.441 percent, compared with 1.195 percent on Dec. 18, and six-month notes at 0.888 percent, down from 1.609 percent.
Economists forecast Spain’s recession will deepen in 2013, the fifth year of its economic slump. That will undermine efforts to tackle the second-largest budget deficit in the euro area, at 9.4 percent of output in 2011, they say.
To contact the editor responsible for this story: Craig Stirling at email@example.com