Spain Sells 3.9 Billion Euros of Bills as Yields Jump

The Bank of Spain in Madrid
A Bank of Spain symbol is seen above a clock on the roof of the bank's headquarters in Madrid. Photographer: Denis Doyle/Bloomberg

Spain sold 3.88 billion euros ($5.1 billion) of three- and six-month Treasury bills, near the maximum target, as borrowing costs rose amid lingering concern the nation will struggle to fund its deficit.

The Treasury auctioned 3 billion euros of 84-day bills at an average yield of 1.804 percent, the Bank of Spain said today in Madrid. That compares with 1.743 percent when the securities were last issued on Nov. 23. The government sold 876.7 million euros of 175-day debt at 2.597 percent, up from 2.111 percent last month. It aimed to sell a maximum of 4 billion euros from the two sales.

“The result looks good, especially considering the current difficult environment for periphery and the negative rating drift we have observed over the last week,” Chiara Cremonesi, a fixed-income strategist at UniCredit SpA in London, wrote today in a report. The six-month yield was “lower than the secondary market ahead of the auction,” while the three-month yield was “slightly higher than the market,” she said.

Spain is seeking to convince investors it won’t need to follow Ireland in needing a European bailout. Moody’s Investors Service said on Dec. 15 it may lower the nation’s Aa1 rating as the 290 billion euros it estimates banks, the government and regional administrations must raise next year make it “susceptible to further episodes of funding stress.”

Costs ‘In Line’

The rising borrowing costs remain “in line” with what the Treasury estimated at the start of the year, Deputy Finance Minister Carlos Ocana said today as he released data showing the central government’s budget deficit narrowed 46 percent from a year earlier in the first 11 months of the year, to 3.68 percent of gross domestic product. The central government targeted a full-year shortfall of 6.7 percent.

The overall Spanish budget-deficit target of 9.3 percent will be met this year as the better-than-targeted central government result offsets possible slippage in local administrations or the social-security system, he told a news conference in Madrid.

The yield on Spanish 10-year bonds rose four basis points to 5.57 percent at 11:03 a.m. in London. The difference in yield, or spread, between the securities and benchmark German bunds rose four basis points to 257 basis points, compared with a euro-era high of 298 basis points on Nov. 30.

Demand for the Spanish three-month bills was 2.14 times the amount sold, compared with 2.34 at the last auction, the Bank of Spain said. The bid-to-cover ratio for the six-month bills was 5.15 times, compared with 2.65 times.

The government is pre-funding for 2011 as this year’s needs have already been met, Finance Minister Elena Salgado said on Nov. 26. Spain’s average cost of financing its outstanding debt is just over 3.6 percent and the country won’t face refinancing problems next year, Salgado said today.

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