Spain Meets Upper Auction Goal, Costs Rise Before ECB Meets

Spain met its maximum target at a bond auction as borrowing costs on longer maturity debt rose.

The Madrid-based Treasury sold 4.02 billion euros ($5.28 billion) of debt, in line with the top target of 4 billion euros. Its two-year benchmark notes were sold to yield 1.903 percent, down from 2.275 percent on March 21, and its three-year benchmarks 2.706 percent, up from 2.442 percent on May 23. The yield was 4.517 percent for a 10-year bond maturing in October 2023, up from 4.452 percent the first time the security was sold via banks on May 14.

The sale preceded a meeting of the European Central Bank today to decide on interest rates. ECB President Mario Draghi has said the Frankfurt-based central bank will act to counter the euro region’s recession if necessary. Economists forecast the ECB will maintain its benchmark rate at a record-low 0.5 percent, according to all except two of 59 economists surveyed by Bloomberg News.

Demand for Spain’s 2015 notes was 2.96 times the amount sold, down from 4.01 at the last auction, while the bid-to-cover ratio was 2.39 for the 2016 securities, up from 2.24. The ratio was 2.52 for the 2023 securities.

’More Attractive’

“There are still buyers for the European periphery despite uncertainties in the global environment,” Peter Chatwell, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London, said in a telephone interview. “If anything, uncertainties about the timing of the Fed’s next move make it more attractive than core countries as it offers higher yields and suffers less from the increase in volatility.”

Spain’s sovereign borrowing costs have dropped since Draghi said in July he would do whatever it takes to safeguard the euro and followed that with a pledge to buy government bonds of countries that ask for assistance.

The yield on its 10-year debt rose two basis points to 4.46 percent at 11:45 a.m. in Madrid, compared with a euro-era high of 7.75 percent in July. The spread with similar German securities widened to 2.96 percentage points.

The ECB will update its economic forecasts as European Union leaders back off austerity-first policies to prevent the euro area’s recession extending to the region’s core.

The EU’s statistics office Eurostat yesterday confirmed gross domestic product in the 17-nation bloc fell 0.2 percent in the first three months of the year, its sixth straight quarter of decline. Separate data showed retail sales in the region fell in April and services contracted last month.

Spain’s Treasury has covered 57 percent of its planned mid-and long-term gross funding needs for 2013, the Economy Ministry said on May 23. It is due to return to the markets on June 18 to sell six- and 12-month bills before a bond auction on June 20.

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