Spain sold 2.8 billion euros ($3.7 billion) of bills, overshooting the maximum target as the Treasury tests demand before the possible sale of a new 10-year bond.
The Treasury, which set an upper goal of 2.5 billion euros for the auction, sold three-month bills at an average 0.441 percent today, compared with 1.195 percent on Dec. 18. It sold six-month notes at 0.888 percent, down from 1.609 percent.
Demand for the three-month bills was 4.19 times the amount sold, compared with 2.92 last month, and the ratio was 3.85 compared with 2.57 on the longer-dated securities, the Madrid-based Bank of Spain 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. In less than a month, Spain has already covered 9.4 percent of its total planned issuance of medium- and long-term debt for the year as it ponders a syndicated sale of a new 10-year benchmark.
“The focus is on the syndicated bond as a new 10-year benchmark has been long overdue,” Norbert Aul, a rates strategist at Royal Bank of Canada in London said in a telephone interview. “A successful deal with a large order book and sound allocation would underline Spain’s ability to place longer-dated maturities amid an improving market environment.”
Spain has hired a group of banks including Barclays Plc, Goldman Sachs Group Inc. and Banco Santander SA to carry out a syndicated sale of a new 10-year benchmark, a person familiar with the sale said yesterday. The bonds may be priced around 375 basis points more than the mid swap rate, a person familiar told Bloomberg today.
The new 10-year is “absolutely necessary to ensure debt sustainability” as Spain risks shortening the average duration of its debt if it continues funding itself on the same pattern as last year, Aul said.
Spain’s 10-year benchmark bond yield rose 1 basis after the sale to 5.17 percent at 11:00 a.m. in Madrid, leaving the spread with similar German maturities at 3.57 percentage points. It rose to 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.
Prime Minister Mariano Rajoy is counting on the Spanish debt rally that followed Draghi’s pledge to allow him to avoid seeking a rescue from the euro-region’s bailout fund. Economists forecast Spain will miss targets set by the European Union to shrink the second-largest budget deficit in the euro area amid a deepening recession.
The Treasury plans to return to the markets Feb. 7 to sell bonds followed by a bill auction on Feb. 12. The Treasury also plans to sell a new, nine-month bill the following week.