Spain tested investor confidence by selling debt for the first time since his return on 10-year bond rose to its highest in a decade after the rescue of Ireland.
Spain sold 2.5 million euros (3.3 billion) of debt to three years from today, the stock price performance of 3.72 percent, 23 basis points less than the same bonds in the market before auction. Spanish bonds extended gains after the sale, and premium bond yields Spanish, Italian and Portuguese in all German bonds fell further in the result.
"The average yield in the auction is well below the secondary markets," said Chiara Cremonesi, a London-based analyst with UniCredit SpA "Given the current environment, the auction was decently received and sends a reassuring message to investors after the recent speculation about the spread of sovereign debt crisis of Spain. "
The extra yield investors demand to hold debt to 10 years in Spain on German bonds rose to a euro was high on November 30 as rescue fueled speculation Ireland Spain and Portugal may be the next to seek help European Union. The spread is up costs for Spain, as banks reduce their debt purchases and redemptions of bonds in the country is expected to increase next year. The risk for Europe is that a bailout for Spain, an economy almost twice the combined size of Greece, Portugal and Ireland, that the strain of the rescue center region of 750 million euros.
Investors ordered 2.27 times the amount of bonds offered today, more than 2.16 hours in the previous auction on 7 October. The yield on three years of Spain in the secondary market decreased 19 basis points, to 3785, the lowest since Nov. 24.
Sovereign Northern Rock
"With its funding commitment to be sharp early next year, which is very important that the feeling is good enough for Spain to enter the market or the country will become a sovereign equivalent of Northern Rock," John Anderson, the chief London Credit on Gartmore Investment Management Ltd., said before the sale, in conjunction with the British bank that was nationalized in 2008.
Spain has nearly 45 million euros of bonds next year, because, up to 32 million euros in 2010, according to the Treasury. The first payment of EUR 15.5 million in April. Spanish banks have about 85 million euros to refinance in 2011, and about 10 percent of the outstanding debt due creditors in the first half of 2011, the Bank of Spain data show.
Bank Shares
"The pressure on Spain is likely to intensify in the next financial year maximum pressure in March and April," wrote Nikolaos Panigirtzoglou, a London-based strategist at JPMorgan Chase & Co. in a research note to clients. "Spanish banks face a heavy obstacle to refinance themselves in 2011, it would be very difficult for them to finance new purchases of bonds from the Spanish government" not funded through the European Central Bank, wrote.
Spanish banks have 26 percent of the outstanding debt of the state, with non-residents holding 48 percent and Spanish pension funds, insurance and social security funds over which account for most of the rest, the figures Treasury show. Spanish banks have reduced their holdings from 33 percent in late 2009, according to the data.
Analysts at Barclays Capital, Simon Samuels and Mike Harrison estimated that the government of Spain and banks try to raise € 73000000000 in the first four months of 2011. Treat the two markets "as a" rescue plan after Ireland, the London-based analysts said in a report of 26 November.
"March and April are key months for Spain," said Mohit Kumar, fixed income strategist at Deutsche Bank in London. "Things have to get sorted in the first quarter to reduce systemic risks. If the feeling does not improve and investors to stay away from the market, it would be difficult even for a country with relatively strong fundamentals."
Premium Performance
Spain's benchmark 10-year had its largest daily fall since the creation of the euro in 1999 on 29 November as the bailout overshadowed the progress the Irish Prime Minister Jose Luis Rodriguez Zapatero cut the region's third largest budget deficit. The yield on the 10-year bond fell 9 basis points to 5.252 percent after falling 23 basis points yesterday.
The yield premium over Germany had risen nearly 150 points to a record euro-zone 298 in the previous month as problems in Ireland, prompting investors to flee the bonds of so-called peripheral countries. That spread fell 14 basis points today to 236.4.
Spain intensified its efforts to reduce investor confidence and rising deficits yesterday. The government announced the sale of nearly half the airport operator Aena, airports and a 30 percent stake in the business of the state lottery. Zapatero also told lawmakers once only 420 euros per month subsidy for unemployed workers will expire in February.
French auction
Spain was competing for funds with France, 5400000000 € auctioned seven, eight and 15 year bonds today. borrowing costs jumped to Portugal at an auction yesterday. The country paid an average yield of 5281 bills in percentage 12 months, compared to 4813 as a percentage of a sale on 17 November.
Investors have been punishing markets across Europe since Ireland became the second country in the euro after Greece to get a rescue package. Sale extended beyond the peripheral markets in Belgium, while the euro fell to a 10-week low against the dollar on 30 November. The euro gained for a second day today, to $ 1.3158, and the so-called peripheral bonds gained on speculation the ECB may act to stem the crisis at a meeting held today in Frankfurt.
Everything "depends on the ECB," said Ioannis Sokos, an interest rate strategist at BNP Paribas in London. "If the ECB are disappointed, no question of good or bad auction auction, which will collapse later."
Robust demand
Carlos Ocaña, Vice Minister of Finance with responsibility for budget, said he was "satisfied" with the outcome of the auction. The markets are "volatile" and "any action that might stabilize the markets would be welcome," said today in Madrid. He refused to comment on whether the ECB should increase purchases of bonds.
Deputy Minister for the financing of the economy, José Manuel Campa, said Nov. 30 the demand for Spanish debt has been "very good", leaving the Treasury in a "comfortable" position. Unlike Ireland prior to his rescue, Spain has not canceled any planned bond sales.
Deutsche Bank AG CEO Josef Ackermann, supported by Spain on 30 November, saying that "mistrust" is not justified and the country "can cope with their problems themselves."
The government has ruled out a rescue plan, says debt repayments coincide with periods in which most of the taxes collected. Campa said the government can not shape his policy regarding market movements in the short term and current prices "are not directly related to the fundamentals" of the Spanish economy.
"If the foundations of Spain are better than those of Portugal is perhaps academic and irrelevant at the moment," Anderson said of Gartmore. "The market is driven by fear."
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