May 9 (Bloomberg) -- Spain beat its maximum target at a bond auction in Madrid today and its borrowing costs fell after an interest-rate cut by the European Central Bank fueled a rally in bonds from distressed euro countries.
The Spanish Treasury sold 4.57 billion euros of debt ($6 billion), compared with its maximum target of 4.5 billion euros, the Bank of Spain said. The 3-year benchmark notes were sold to yield 2.247 percent, compared with 2.792 percent on April 18, and the 5-year benchmark 2.789 percent, after yielding 3.257 percent in April.
Spain is seeking to benefit from improving confidence in the euro area’s fourth-largest economy as the European Commission forecasts the country’s public debt load will exceed the euro region’s average next year for the first time in the currency’s history. In the first quarter, Spain covered a third of its total planned funding for 2013, including bills.
The yield was 4.336 percent for 2026 bonds, compared with 5.555 percent the last time they were tapped on Jan. 10. Demand for the 2016 notes was 2.34 times the amount sold, compared with 2.84 last month, while the bid-to-cover ratio was 2.24 for the 2018 securities, compared with 2.52 at the previous sale.
It was 1.62 for the 2026 bonds, compared with 2.85 in January. The Treasury is due to return to the markets next week to sell six- and 12-month bills.
The yield on Spain’s 10-year bond rose 5 basis points to 4.15 percent at 11:08 a.m. in Madrid, leaving the spread with similar German maturities at 2.91 percentage points. That compares with a euro-era high of 7.75 percent in July, before ECB President Mario Draghi pledged to do whatever is needed to hold the single currency together.
The yield dipped below 4 percent on May 3 for the first time since October 2010 at the end of a week when the ECB cut its benchmark lending rate to a record low of 0.5 percent to rekindle growth in the 17-nation region.
The European Commission last month said Spain’s request for two more years to tackle the largest budget deficit in the European Union is “reasonable.”
International Monetary Fund Managing Director Christine Lagarde said she supported Prime Minister Mariano Rajoy’s plan to push back compliance with the EU’s 3 percent deficit limit to 2016, further encouraging officials in Brussels and Berlin who are backing away from austerity-first policies. Both the commission and the IMF forecast Spanish unemployment will peak this year as output contracts 1.5 percent before the economy returns to growth in 2014.
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