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Spain Raises $6.9 Billion With Inaugural Inflation Bond Sale

Spain raised 5 billion euros ($6.9 billion) in its first sale of bonds tied to inflation as the calming of Europe’s sovereign-debt crisis allows the nation to access new markets for funding.

The securities were priced with a real yield -- the rate before inflation is taken into account -- of 1.835 percent, Spain’s Economy Ministry in Madrid said in an e-mailed statement. Investor demand amounted to 20.3 billion euros, four times the amount sold, the ministry said.

Traders are scooping up the euro region’s higher-yielding government bonds amid speculation the European Central Bank will expand steps to stimulate the economy. The average yield to maturity on conventional securities from Greece, Ireland, Italy, Portugal and Spain fell to 2.13 percent on May 8, the least on record, according to Bank of America Merrill Lynch indexes.

“It underscores how strong demand is for peripheral paper,” said Michael Leister, a senior fixed-income strategist at Commerzbank AG in London. “It’s a very successful syndication.”

Non-resident investors bought 73 percent of the issue, the Spanish Economy Ministry said. Forty-one percent was bought by funds, 21 percent by banks and 16 percent was acquired by insurance companies and pensions, it said. Central banks bought 8 percent of the securities, the ministry said.

Inflation Protection

Euro-area states are selling linkers as they bet consumer-price increases will stay under control, while investors are concerned central-bank stimulus efforts will fuel inflation. A sale of index-linked bonds would also enable Spain to extend the average maturity of its debt and obtain longer-term funding, Treasury head Inigo Fernandez de Mesa said in April.

The yield on Spain’s 3.8 percent bonds due in 2024 fell three basis points, or 0.03 percentage point, to 2.90 percent at 4:57 p.m. London time today. It touched 2.85 percent on May 9, the lowest yield on record for a 10-year security. The rate has fallen from 7.75 percent in July 2012, when Europe’s sovereign debt crisis threatened to shatter the currency union.

Payments on the linkers will be tied a European harmonized consumer-price index that excludes tobacco costs.

Barclays Plc, BNP Paribas SA, CaixaBank SA, Deutsche Bank AG, Banco Santander SA and Societe Generale SA managed the sale, according to a person familiar with the arrangements.

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