April 17, 2012

Yields, Demand Both up on Spanish Bonds

Total tops target with next auction in the wings

While investors may be jittery about Spain’s financial condition, they jumped on higher yields to scoop up bonds at an auction beyond what Madrid had hoped to sell.

Bloomberg reported Tuesday that sales of 12- and 18-month bills exceeded the country’s target of 3 billion euros ($3.9 billion), but yields on the 12-month bills came in at 2.623%, up from 1.418% just last month, with at demand at 2.9 times the amount offered. The 18-month bills went at a yield of at 3.11%, up from 1.711% in March, with demand at 3.77 times offerings.

“As far as this auction goes, not so bad but not good enough, in my opinion, to provide the market with a sense of optimism going into the bond auction on Thursday,” Luca Jellinek, head of European interest-rate strategy at Credit Agricole Corporate & Investment Bank in London, said in the report.

Another auction is planned for April 19, this time of 2-year and 10-year bonds; Madrid hopes to raise 2.5 billion euros in sales at that time.

Spanish officials have called on the European Central Bank (ECB) to provide additional help in purchasing bonds, and a meeting was planned on Tuesday between the Spanish economy minister, Luis de Guindos, and ECB President Mario Draghi.

In April Spain must face bond redemptions totaling 11.9 billion euros. July will see another 12.7 billion come due and in October, 20.2 billion. Still, Spain insists it does not need a bailout, with Prime Minister Mariano Rajoy saying just Friday that it was “not possible” for the E.U. to rescue Spain.

However, the country’s industry minister, Jose Manuel Soria, on Tuesday invoked the specter of a rescue to justify budget cuts. In a radio interview, he said, “If we don’t meet the deficit targets they will stop lending to us, and if no one lends to us, they will have to rescue us, and because the government rules out the possibility of a rescue and intervention, that’s why we’re doing reforms.”

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