Tags: Spain | debt | sales | contagion

Strong Debt Sales Reflect Spain's Improving Growth Prospects

Tuesday, 28 Jan 2014 01:55 PM

Spain's short-term borrowing costs fell at a treasury bill sale on Tuesday and demand at a Madrid regional bond sale was double the amount on offer as an upgrade of the country's growth forecast reinforced investor confidence.

Spain's sooner-than-expected return to economic growth and successful efforts to reduce its budget shortfall have helped fuel investor enthusiasm for the country, which came close to requesting a sovereign bailout at the height of the eurozone crisis.

Economy Minister Luis de Guindos said on Tuesday he expected 2014 GDP to grow close to 1 percent compared to an official forecast of 0.7 percent.

The Community of Madrid, the autonomous region that includes Spain's capital, said the 1.4 billion euros sale of a new five-year bond was the biggest debt sale ever for a regional government in the country.

For the first time, Asian investors bought a regional issue in Spain, Madrid's economic councilor Enrique Ossorio told a news conference.

The bond carried a coupon of 2.875 percent and sold at a premium of 49 basis points over the sovereign bond of the same maturity, compared with a 5.75 percent coupon on a five-year bond Madrid sold a year ago.

The Madrid regional government's financing costs had soared during the eurozone crisis, but it was never completely cut off from funding like many of Spain's 17 autonomous regions, and it has one of the lowest deficits of the country's regional governments.

NO CONTAGION?

At the sovereign debt auction, demand for three-month paper was especially high, though the Treasury is choosing to rein in the sale of short-term debt as it shifts its focus to longer bonds in an effort to extend the average maturity of its debt portfolio.

The Treasury sold 3.1 billion euros ($4.24 billion) of 3- and 9-month bills compared with a target range of between 2 billion and 3 billion euros.

Investors shrugged off the threat of contagion from a sell-off in emerging markets in recent days due to economic and political concerns in countries such as Argentina and Turkey.

"People are in the game for Spain at the moment and I don't think the emerging market concerns are having much effect," said 4Cast strategist Bhavisha Patel.

Tuesday's shorter-dated T-bill saw demand outstrip supply by 5.2 times and sold at an average yield of 0.343 percent compared to 0.631 percent when it was last auctioned on Dec. 17.

The yield on the nine-month paper fell to 0.655 percent from 0.841 percent previously, with demand less than for the shorter-dated bill and below that registered at the previous auction. The Treasury sold 2.2 billion euros of the nine-month bill and 937 million euros of the three-month bill.

Spain has said it aims to break even in bills this year, while issuing a net 65 billion euros in long-term bonds.

Over 70 percent of the bonds it has sold so far this year have carried a maturity of 10 years or more, and the Treasury saw bumper demand for a 10-year syndicated bond last week.

The risk premium on Spanish benchmark bonds compared with German debt narrowed on Tuesday to 203 basis points, after rising to as high as 218 on Friday due to the emerging markets' turmoil.

Spanish stocks, which had also been hit by the emerging market concerns, bounced back on Tuesday, with the country's banks among Europe's top gainers after de Guindos said economic growth could be stronger than originally forecast.

The IBEX benchmark index closed up 1.24 percent.

De Guindos also said Spain's public deficit, which was around 5.44 percent of GDP in November, was on track to meet the 2013 end-year target of 6.5 percent, helped by a saving in interest payments on debt and an increased tax intake from a sooner-than-expected return to economic growth.

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Spain's short-term borrowing costs fell at a treasury bill sale on Tuesday and demand at a Madrid regional bond sale was double the amount on offer as an upgrade of the country's growth forecast reinforced investor confidence.
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2014-55-28
Tuesday, 28 Jan 2014 01:55 PM
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