Spanish Auction Misses Maximum Goal as Demand for Peripheral Bonds Falls
By Emma Ross-Thomas - Nov 4, 2010 11:25 AM GMT+0100 Thu Nov 04 10:25:11 GMT 2010
Spain sold 3.4 billion euros ($4.9 billion) of five-year bonds, less than the Treasury’s maximum target, as demand for peripheral euro-region debt declined.
The April 30, 2016 bonds, issued for the first time, yielded an average 3.576 percent, compared with 3.531 percent for bonds of similar maturity on the secondary market before the sale. Demand was 1.6 times the amount sold, the Treasury said. The Treasury targeted a maximum of 4 billion euros for the sale.
The extra yield investors demand to buy Irish bonds over German equivalents surged to a euro-era record today and Portugal’s borrowing costs gained at a bond sale yesterday after German politicians stepped up calls for bondholders to share the cost of future debt restructurings. European leaders are debating how a permanent European debt-crisis mechanism will work, with Spanish Prime Minister Jose Luis Rodriguez Zapatero saying on Oct. 29 he is cautious about involving the private sector.
“From the point of view of the amount sold and the bid-to- cover, it’s not a stellar auction,” said
Chiara Cremonesi, a fixed income strategist at UniCredit Bank AG in London. She estimates Spain still has to issue 12 billion euros over the next three bond auctions, unless the Treasury changes its borrowing plans.
The
yield on Spanish 10-year bonds rose after the auction to 4.322 percent, from 4.288 percent yesterday. Bonds due in January 2016 fell, with the yield rising to 3.544 percent from 3.487 percent yesterday.
Debt issued by Ireland, Portugal and Spain came under renewed pressure this week after German Chancellor Angela Merkel said bondholders should share the cost of any restructuring, rather than leaving taxpayers “on the hook.” Her finance minister, Wolfgang Schaeuble, stepped up the calls yesterday, saying the euro’s stability depends on making investors responsible and that private-sector participation is a “central element” of the proposed mechanism.
The spread on Irish debt surged to 518 basis points, while Portugal’s risk premium rose to 395 basis points, a three-week high. Spain’s extra borrowing costs, at 184 basis points, have risen less those of the other two as the country’s fiscal consolidation is progressing more quickly than in Portugal, Greece or Ireland.
Spain’s
central government trimmed the deficit by 42 percent in the first nine months, compared with 31 percent in Greece and a widening budget gap in Portugal. Ireland’s overall deficit is expected to swell to 32 percent of gross domestic product this year, including the cost of rescuing its financial system.
(Bloomberg)
