Spain to Reduce Bond Sales as 2016 Net Issuance Shrinks 11%

  • Nation cut net funding target by 5 billion euros on Tuesday
  • Treasury said to be open to selling more bonds due in 2064

Spain’s 5 billion-euro ($5.7 billion) reduction in net issuance planned this year will come almost entirely from lower sales of bonds rather than bills, according to a Treasury official.

Economy Minister Luis de Guindos reduced the forecast for net debt sales in 2016 to 40 billion euros on Tuesday from 45 billion euros targeted in December. That will lead to cutting back on medium- and long-term bond issuance, said the official, who asked not to be identified before an announcement. Even so, Spain is still looking to extend the average maturity of its debt to about seven years from 6.55 years presently, the official said. It’s also open to selling more of the 2064 bond, its longest-maturity debt.

De Guindos’s forecast came even after Spain last week said it missed its 2015 budget-deficit target. While political parties have failed to form a government after inconclusive elections in December, the country’s financing costs have been driven lower by the European Central Bank’s quantitative-easing program.

The yield on Spain’s five-year notes has plunged to 0.37 percent on Wednesday from 0.82 percent back on Jan. 21, 2015. That was the day before the ECB announced a QE plan that to date has purchased more than 75 billion euros of Spanish sovereign debt.

The Treasury is in a better borrowing position because its previous debt estimate was conservative, government revenue is on target to increase slightly more than 4 percent in 2016, and cash holdings provide more than enough buffer, the official said.

Spain’s 10-year bond yield fell five basis points, or 0.05 percentage point, to 1.49 percent at 12:57 p.m. in London. It’s down from 1.63 percent reached on April 7, the highest since February.

The Madrid-based debt agency will issue a new benchmark for 10 years, and possibly 15 years as well, while considering offering more of its existing benchmark, including the 2064 debt, the official said. That 50-year bond, which has not been reopened since it was first sold in September 2014, fell on Wednesday, with the yield rising five basis points to 2.85 percent.

As for inflation-linked debt, the Treasury expects to keep tapping its three existing securities and will consider selling a new one, the official said.

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