Spanish Bonds Poised for ‘Relief Rally’ on Aid: Analyst Comments
Fixed-income analysts comment on Spain’s request for as much as 100 billion euros ($126 billion) of European bailout funds to shore up its banking system.
Spain’s Economy Ministry said the financial assistance won’t undermine the current stock of the nation’s debt and it will continue to issue securities through regular auctions. The analysts commented in investor notes received by e-mail.
Charles Diebel, head of market strategy at Lloyds Banking Group Plc in London:
“The pressure on the Spanish sovereign should ease and lower funding costs should be a substantial spin-off benefit. The currency likewise should draw some support. But with the Italian financial sector next in line this is no panacea.”
Francesco Garzarelli, co-head of macro and markets research at Goldman Sachs Group Inc.:
“The funding program of the Spanish government will not be affected and the loan will come at much more advantageous terms for the public sector than current market rates. The combination of these two factors should reduce pressure on the Spanish sovereign. All else equal, yields should decline, particularly at the front end of the curve. A more sustained compression requires a reduction of systemic fears surrounding the European Monetary Union project.”
Laurent Fransolet, head of European fixed-income strategy at Barclays Plc in London:
“The issuance program for Spain is relatively limited going forward. This issuance, ex-bank recapitalization, can probably be absorbed by domestic investors. We would not expect much more additional liquidations of non-resident holdings. Financial assistance through a long-term loan and at low interest rates should also (somewhat) alleviate the public debt dynamics.”
Harvinder Sian, a senior fixed-income strategist at Royal Bank of Scotland Group Plc in London:
“The initial reaction to bailouts has typically been some mild relief rally. That relief rally should however fade and then reverse. Where we have a problem is in seeing a clear stabilization of the debt numbers in Spain in a timescale that will allow bond yields to come down.”
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