Spain Meets EU4.5 Billion Target at Second Bond Sale of 2013

Spain matched its maximum target of 4.5 billion euros ($6 billion) at its second bond sale of the year as the Treasury seeks to fast-track a higher issuance program than last year.

The Madrid-based Treasury priced its 3.75 percent 2015 bond to yield 2.713 percent, compared with 3.358 percent the last time it was sold on Dec. 13. The 2018 bond yielded 3.77 percent, down from 3.988 percent on Jan. 10, and the 2041 bond 5.696 percent, compared with 5.893 percent the last time a similar maturity bond was sold on Dec. 13.

With 10-year yields around 5 percent, Spanish debt is trading at levels unseen since early March 12, after European Central Bank President Mario Draghi flooded the banking system with more than a trillion euros. Draghi sparked another rally in July, pledging debt purchases on secondary markets for sovereigns applying for European Union aid.

Demand for the 2015 bond was 2.02 times the amount sold, compared with 4.81 in December, while the bid-to-cover ratio was 2.32 for the 2018 bond, compared with 2.59 last week, and 2.0 for the 2041 notes from 2.09 last month.

The yield on the 10-year benchmark bond was little changed at 5.03 percent after the sale, at 10:50 a.m. in Madrid, compared with a euro-era record of 7.75 percent on July 25. The spread with similar German maturities narrowed to 344 percentage points.

Financing Needs

Spain needs to issue an average of 10 billion euros a month this year, according to Justin Knight, a UBS AG rates strategist in London. The Treasury plans to raise net issuance by 24 percent to 71 billion euros as a deepening recession dries up tax receipts and undermines domestic demand, forcing most of the largest semi-autonomous regions to rely on it for funding.

Prime Minister Mariano Rajoy, in office since December 2011, wants to avoid seeking an ECB intervention to lower Spain’s borrowing costs. Economists forecast his government will miss budget goals set by the EU 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.

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