Spain Draws Record Demand in 10-Year Sale, Minister Says

Spain had record demand in the syndicated sale of a new 10-year bond, Economy Minister Luis de Guindos said. The government will release results of the auction later today.

“Never in the history of Spain’s Treasury has there been such a volume of demand whether in an auction or a syndicated sale,” de Guindos told reporters in Brussels following a meeting with European Union peers. “Investors sought 24 billion euros ($32 billion) of the 10-year bond; this is a clear indication of the Spanish economy’s credibility.”

The bonds may be priced around 365 basis points more than the mid swap rate, a person familiar with the deal told Bloomberg today.

The new 10-year is “absolutely necessary to ensure debt sustainability,” Norbert Aul, a rates strategist at Royal Bank of Canada in London said in a telephone interview. Spain risks shortening the average duration of its debt if it continues funding itself on the same pattern as last year, Aul said.

Spain is taking advantage of a rally in securities of so-called peripheral countries this month to fast-track debt sales as it faces a 24 percent increase in net funding needs this year. In less than a month, Spain has already covered 9.4 percent of its total planned issuance of medium- and long-term debt for the year.

Declining Yields

The yield on Spain’s two-year benchmark bond fell to a session-low of 2.48 percent at 3:06 p.m. in Madrid while it dropped as low as 5.04 percent for the 10-year benchmark bond. That compares with a euro-era record of 7.75 percent on July 25, before European Central Bank President Mario Draghi pledged to backstop the euro area’s fourth-largest economy.

Spain’s short-term borrowing costs dropped at a sale today of 2.8 billion euros of bills, overshooting an upper goal of 2.5 billion euros. It sold three-month bills at an average 0.441 percent, compared with 1.195 percent on Dec. 18, and six-month notes at 0.888 percent, down from 1.609 percent.

Prime Minister Mariano Rajoy is counting on the Spanish debt rally that followed Draghi’s pledge to avoid a rescue from the euro-region’s bailout fund. The European Commission today said the nation is likely to miss its deficit target of 6.3 percent of output in 2012 even if the most recent budget cuts produce their full impact in the last quarter.

Even so, de Guindos said the budget data will be positive. “What will stand out in the end is the huge effort Spain has made to reduce its public deficit in a very complicated environment,” he told reporters. Spain’s planned austerity measures through 2014 will be enough, he said.

Economists forecast Spain’s recession will deepen in a fifth year of economic slump this year, undermining efforts to tackle the second-largest budget deficit in the euro area, at 9.4 percent of gross domestic product in 2011.

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