Spain Government Beats Italy to Borrow at Below-Zero Rate

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Spain’s government borrowed money for the first time at interest rates below zero, as investors pay increasingly more for euro-area debt knowing prices will be supported by the region’s quantitative-easing stimulus program.

The Treasury sold 725 million ($787 million) euros of six-month bills to yield minus 0.002 percent. That compares with an average yield of 0.036 percent in a March 10 auction, and as much as 5.227 percent in late 2011 during the euro crisis.

Just two months into the start of the European Central Bank’s unprecedented plan to inject 1.1 trillion euros into the euro system, Spain’s government has already begun to eliminate its short-term financing costs. The euro-area’s fourth-largest economy beat Italy to become the second periphery nation whose government can issue negative-yielding debt, after Ireland.

“Spain looks more solvent and credit-worthy compared to Italy,” said Felix Herrmann, a fixed-income analyst at DZ Bank AG in Frankfurt. “The Spanish government has moved forward with reforms and is stable.”

While the ECB only buys debt that comes due in two years to 30 years plus 364 days, its actions are helping push down borrowing costs across the board. One action was to lower its deposit rate, the charge levied on lenders to park excess cash at the ECB overnight, to minus 0.2 percent in September.

The ECB on Tuesday said its member central banks acquired 5.4 billion euros of Spanish debt in March, and 7.6 billion euros of Italian. The total for all countries was 41.7 billion euros. Bank of Spain Governor Luis Maria Linde said in January the ECB may buy about 100 billion euros in total of Spanish sovereign debt.

‘Normal’ Interest

Spain’s central government has said the “normalization” of borrowing costs stemming from QE should help it better cover financing needs this year. In its funding plan for 2015, Spain said its net issuance would be about 55 billion euros.

Reacting to the record low auction, Prime Minister Mariano Rajoy said the country is now “getting paid” to issue debt, and the fall in borrowing costs would help cement the recovery, in a political party meeting Tuesday.

The average yield of new Spanish government debt is tumbling at an accelerating pace. It stood at 1.01 percent on March 31, down from 1.52 percent at year-end and 2.45 percent at the end of 2013, the Treasury said.

European nations from Germany to the Netherlands and France have also capitalized on investors’ appetite for European debt under the umbrella of the ECB’s stimulus package.

As part of the program, the Frankfurt-based bank has pledged to buy 60 billion euros of assets, including government bonds, on a monthly basis through September next year.

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