Catalan Quandary No Bar to Spain's 9 Billion-Euro Bond Sale

  • Nation sells 10-year bonds via banks in its first sale of 2016
  • Yield spread over Italian securities climbs to two-month high

Spain sold 9 billion euros ($9.8 billion) of bonds in its first sale of the year, showing that investors are shrugging off the political upheaval gripping the nation.

The Spanish Treasury said the sale received demand of about 30 billion euros. Foreign investors bought 65 percent of the new 10-year bonds, which were priced to yield 1.986 percent. The response bodes well for a week of heavy issuance of euro-zone debt, with Spain itself due to offer as much as 5 billion euros of bonds with maturities up to 2023 on Thursday.

“Despite any political jitters, the Spanish treasury has sold a 10-year deal at competitive terms,”  said Kim Liu, a fixed-income strategist at ABN Amro NV in Amsterdam. “The deal was likely supported by a wide and diversified investor group.”

Spanish bonds haven’t, though, been immune to the political crisis that saw the Catalonia region form a separatist government on the weekend. The 10-year yield premium over Italian debt has been widening since early December, and jumped to a two-month high of 0.22 percentage point on Tuesday as investors made room for the new offering.

The main reason Spain’s bonds have underperformed Italian debt is “political risk,” Liu said. “The relative value of this new 10-year deal has drawn investors who are willing to bear that risk for the time being.”

The yield on Spain’s existing 10-year bond rose three basis points, or 0.03 percentage point, to 1.83 percent as of the 5 p.m. London close, after climbing nine basis points on Monday. The 2.15 percent security due in October 2025 fell 0.295, or 2.95 euros per 1,000-euro face amount, to 102.815.

When the nation sold 10-year bonds via banks in January 2015, the size of the deal was the same but the securities were priced to yield 1.656 percent.

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