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Spain Meets Goal at Bond Auction of Longest Debt Since 2011

Spain Meets Goal at Bond Auction Selling Longest Debt Since 2011
Spain plans gross debt issuance of 207 billion euros next year, up from 192 billion planned for 2012. Photographer: Angel Navarrete/Bloomberg

Dec. 13 (Bloomberg) -- Spain sold 2.02 billion euros ($2.64 billion) of debt, including the longest-maturity bond it has auctioned for more than a year, as the Treasury seeks a funding buffer for next year.

The Treasury met its maximum target for the sale of 2 billion euros, lower than its usual goals of at least 3 billion euros. The average yield for the three-year benchmark bond was 3.358 percent compared with 3.39 percent on Dec. 5. The yield fell to 4.2 percent for the five-year benchmark from 4.766 on Oct. 4 and was 5.893 percent on the 2040 bonds.

Spain has completed the debt sales it planned for this year and started raising funds for 2013, buying time for Prime Minister Mariano Rajoy as he decides whether to seek a European bailout. Bond prices fell after the auction, the last sale of long-term securities this year.

“It wasn’t terribly ambitious but it’s year-end; people are very averse to taking more risk onto their balance sheet and the market has been behaving very well going into the auction,” Mohit Kumar, head of European rates strategy at Deutsche Bank AG, said in a phone interview. “There’s a lot of concern about 2013, whether Spain will ask for aid.”

Demand was 4.81 times the amount sold for the 2015 notes, up from 2 on Dec. 5, and the ratio for the 2017 bonds rose to 3.13 from 2.47 on Oct. 4. The bid-to-cover ratio was 2.09 for the 2040 bonds.

Bond yields initially fell today after European finance ministers reached a deal to centralize banking supervision in a move aimed at severing the link between banking troubles and sovereign debt. After the sale, the yield on the 10-year benchmark bond rose to 5.38 percent from 5.34 percent beforehand.

That compares with a euro-era record of 7.75 percent on July 25, a day before the European Central Bank first signaled willingness to help lower sovereign borrowing costs and a day after Spain’s government signed conditions for a 100 billion-euro European credit line to recapitalize its banks.

The Treasury, which returns to the market on Dec. 18 for the last time this year to sell bills, said Dec. 11 it has sold 111 percent of its planned 2012 mid- and long-term issuance.

Spain plans gross debt issuance of 207 billion euros next year, up from 192 billion planned for 2012. It also plans to raise 23 billion euros on behalf of the regions, as most remain locked out of financial 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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