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Spain Pays Least in Eight Years to Borrow After Program Ends

A Banco de Espana Sign Sits Outside a Metro Station in Madrid
A sign for Banco de Espana stands above the entrance to the metro station outside Spain's central bank in Madrid. Photographer: Angel Navarrete/Bloomberg

Spain paid the least since 2006 to borrow for 10 years as foreign investors snap up the bonds of nations emerging from European bailout programs.

The Treasury in Madrid, auctioning its new 10-year benchmark note for the first time today, paid 3.559 percent compared with 4.098 percent on similar maturity bonds in December. It sold 30-year bonds at 4.519 percent, compared with 5.432 percent for similar debt in March 2013 and five-year debt at 2.263 percent compared with 2.254 percent on Feb. 6.

Bonds issued by peripheral European nations are rallying as Ireland and Spain have exited their rescue programs and Portugal prepares to do the same. Greek borrowing costs fell to the lowest since 2010 this week and a surge in foreign investors’ demand for Spanish assets has helped push the nation’s main stock index up more than 30 percent since June.

The last time the Spanish Treasury borrowed so cheaply the economy was growing 4 percent a year, public debt was 40 percent of output and a property boom was approaching its peak. Since then Spain has suffered a financial crisis and two recessions, pushing the public debt burden close to 100 percent and unemployment to more than 25 percent.

‘Bit Stretched’

“The auction went well despite the fact that the valuation of some peripheral bonds is looking a bit stretched at this point,” said Alessandro Giansanti, a senior rates strategist at ING Bank NV in Amsterdam. “The overall picture remains positive for Spanish bonds in terms of sentiment.”

The aggregate yield on peripheral bonds declined to a record low of 2.58 percent yesterday, according to Bank of America Merrill Lynch Bond Indexes.

After the auction, the yield on Spain’s 10-year benchmark traded at 3.597 percent compared with 3.558 percent yesterday.

The Treasury sold 5 billion euros of debt, meeting its maximum target, as demand for the 10-year debt was 1.93 times the amount sold.

The 30-year bond was first sold via banks in October at 5.213 percent, according to the Treasury. Spain sold 10 billion euros of the 10-year benchmark in January in the country’s largest ever syndication. Portugal, which didn’t sell bonds for almost two years after its 2011 bailout, has raised 6.25 billion euros ($8.6 billion) via banks this year.

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