Spanish and French Bond Sales Draw Strong Demand

MADRID — Spain passed its biggest test of market sentiment so far this year on Thursday, selling far more longer-term debt than expected as the government pressed ahead with efforts to tackle its problems with the help of a European Central Bank backstop.

France also drew strong demand at its first bond auction since Standard and Poor’s stripped the country of its AAA credit rating.

Spain’s first 10-year bond offering since mid-December raised €3 billion, or $3.9 billion, at a yield of 5.403 percent, broadly in line with analysts’ expectations.

The yield was down more than 150 basis points from a previous sale of the bonds in November, offering some measure of the progress Madrid and euro zone policymakers have made in easing the pressure on its finances.

In all, the Treasury sold €6.6 billion of bonds maturing in 2016, 2019, and 2022, far more than the €4.5 billion targeted. Bid to cover rates on the issues ranged from 2.0 to 3.2.

“The solid demand is a clear sign that market interest” for some of the euro zone’s weaker members “has clearly picked up,” said Annalisa Piazza, market economist at Newedge Strategy in London.

Other euro zone sovereign debtors have leapfrogged Spain to become more prominent targets for investors, but Madrid remains in the market’s sights.

Spanish sovereign yields rose after the auction, with 10-year paper 9 basis points higher at 5.28 percent. The spread between 10-year Spanish and the benchmark German Bunds also widened 9 basis points to 347 basis points.

Peter Chatwell, a rate strategist at Crédit Agricole, said he expected that trend to reverse during the day “as the fact is this is another auction which exceeds the target amount.”

Spain has easily sold shorter-dated debt in recent weeks, aided by the European Central Bank flooding banks with cheap three-year loans and buying Spanish and Italian debt regularly on the market.

But while banks were willing to reinvest the three-year loans over a similar or shorter time scale, finding buyers for 10-year paper was considered a sterner test.

In Paris, the national debt management agency sold €7.965 billion of medium-term bonds at the top of a target range of €6.5 billion to €8 billion. It received bids for €18.9 billion.

S.P.’s downgrade on Friday was largely anticipated by the market and has had little impact on French yields in the secondary market and in a short-term bill auction on Monday.

Article source: http://www.nytimes.com/2012/01/20/business/global/spanish-and-french-bond-sales-draw-strong-demand.html?partner=rss&emc=rss