Spain Beats Maximum Target in First 2013 Debt Sale

Spain overshot its maximum target and its borrowing costs fell during its first debt auction of the year as the nation aims to raise net debt issuance by 24 percent in 2013.

The Madrid-based Treasury raised 5.82 billion euros ($7.6 billion) in the sale of three bonds, one of which hasn’t been sold in recent months and a new two-year security with so-called collective-action clauses limiting investors’ rights to oppose writedowns. The upper target for the sale was 5 billion euros.

The 2015 note yielded 2.476 percent, compared with 3.282 percent the last time a similar maturity was sold on Oct. 4, the 2018 bond 3.988 percent, compared with 4.680 percent the last time it was sold on Nov. 8, and the 2026 bond 5.555 percent, compared with 5.593 percent on the secondary markets before the sale.

Spain aims to sell a net 71 billion euros of bonds and bills this year, up from 57.1 billion euros of debt last year, when it sold 55 percent more than planned. The Treasury faces rising funding needs as most Spanish regions are locked out of markets and a deepening recession blunts budget deficit cuts.

‘No Imminent Concern’

“Today’s auction reflects there’s no imminent concern Spain might go down the same road as Portugal, Ireland or Greece,” Fadi Zaher, head of fixed-income sales and trading for Barclays Wealth and Investment Management in London, said in a telephone interview. “Sentiment may dampen when budget cuts start having an impact on the bank loans’ performance and business is hurt as consumer spending is on its knees.”

Spain’s 10-year benchmark bond yield fell 13 basis points to 5.040 percent after the sale at 11:08 a.m. in Madrid, narrowing the spread with similar German maturities by as much as 16 basis points to 3.54 percentage points. Demand for the 2015 bond was 2.07 times the amount sold, compared with 2.03 in October, while the bid-to-cover ratio was 2.59 for the 2018 bond, compared with 1.57 in November. For the 2026 notes it was 2.85.

In office since December 2011, Prime Minister Mariano Rajoy is hoping to avoid seeking a European Central Bank intervention to lower Spain’s borrowing costs. The premier’s government is struggling to meet budget goals set by the European Union to tackle the second-largest shortfall in the euro area, as large as Greece’s at 9.4 percent of gross domestic product in 2011.

Spain’s 10-year borrowing costs rose to a euro-era record of 7.75 percent before ECB President Mario Draghi pledged to save the euro on July 26. The program the ECB has since presented, and which is known as OMT, would consist of debt purchases on the secondary markets for nations requesting aid from the EU’s ESM rescue-fund.

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