07/07/2011 16:33
Spain successfully auctioned €3bn of medium-term bonds in a robustly subscribed auction on Thursday, helping to assuage concerns that renewed investor worries about peripheral eurozone members could dent demand for its debt.
But there remained stubborn niggles about the fiscal position of other peripheral eurozone members. The cost of insuring Portuguese debt against default reached fresh record highs after Moody’s slashed Portugal’s credit rating into junk territory earlier this week.
Five-year credit default swaps on Lisbon’s sovereign debt were 95 basis points higher at 1,015 according to data from Markit. That brought the cost of protecting €10m of exposure to €1.015m.
There was better news from Madrid, as Spain sold €1.5bn each of five- and three-year bonds, paying a higher cost to borrow than previous equivalent recent auctions but managing to attract strong subscription levels for the issue.
Nonetheless, strong demand was balanced by Spain being forced to pay interest rates for the sale that were higher than previous similar auctions, reflecting the increased perception among investors of the risks of lending to eurozone issuers.
To borrow money for five years, Spain was forced to pay investors an average return of 4.871 per cent, lower than the current rate similar bonds are trading at in the secondary market but higher than the 4.549 per cent level seen in its last auction in May. The three-year bonds were sold at an average yield of 4.291 per cent.
For the five-year sale, the bid-to-cover ratio – a measure of investor demand for the issue against the total amount being sold – was 2.85 times, higher than the 1.86 times level seen at the May auction. Demand for the three-year sale came in at 2.29 times.
The successful sale followed a choppy auction for the debt issued by the Frob, Spain’s sovereign-backed bank bailout fund, which on Wednesday paid a spread over benchmark borrowing rates almost 10 times higher than its first debt sale in November 2009.
Yields on Spain’s benchmark 10-year bond have remained elevated in the context of ongoing negotiations about how Greece’s immediate government debt problems will be resolved and the prospect that a disorderly conclusion could trigger market panic that may subsume its fellow bailed-out eurozone peers, Ireland and Portugal.
The 10-year yield, which moves inversely to the bond’s price, declined after the sale, dropping by about 8 basis points to 5.65 per cent. The premium investors currently demand to lend to Spain over Germany, however, remained close to the euro-era high of nearly 300 basis points.
The Spanish government has issued repeated reassurances that its programme of deficit cutting and austerity measures will be enough to keep the eurozone’s fourth-largest economy out of the crosshairs of bond market investors probing the financial solidity of other larger countries in the economic bloc.
But there remained stubborn niggles about the fiscal position of other peripheral eurozone members. The cost of insuring Portuguese debt against default reached fresh record highs after Moody’s slashed Portugal’s credit rating into junk territory earlier this week.
Five-year credit default swaps on Lisbon’s sovereign debt were 95 basis points higher at 1,015 according to data from Markit. That brought the cost of protecting €10m of exposure to €1.015m.
There was better news from Madrid, as Spain sold €1.5bn each of five- and three-year bonds, paying a higher cost to borrow than previous equivalent recent auctions but managing to attract strong subscription levels for the issue.
Nonetheless, strong demand was balanced by Spain being forced to pay interest rates for the sale that were higher than previous similar auctions, reflecting the increased perception among investors of the risks of lending to eurozone issuers.
To borrow money for five years, Spain was forced to pay investors an average return of 4.871 per cent, lower than the current rate similar bonds are trading at in the secondary market but higher than the 4.549 per cent level seen in its last auction in May. The three-year bonds were sold at an average yield of 4.291 per cent.
For the five-year sale, the bid-to-cover ratio – a measure of investor demand for the issue against the total amount being sold – was 2.85 times, higher than the 1.86 times level seen at the May auction. Demand for the three-year sale came in at 2.29 times.
The successful sale followed a choppy auction for the debt issued by the Frob, Spain’s sovereign-backed bank bailout fund, which on Wednesday paid a spread over benchmark borrowing rates almost 10 times higher than its first debt sale in November 2009.
Yields on Spain’s benchmark 10-year bond have remained elevated in the context of ongoing negotiations about how Greece’s immediate government debt problems will be resolved and the prospect that a disorderly conclusion could trigger market panic that may subsume its fellow bailed-out eurozone peers, Ireland and Portugal.
The 10-year yield, which moves inversely to the bond’s price, declined after the sale, dropping by about 8 basis points to 5.65 per cent. The premium investors currently demand to lend to Spain over Germany, however, remained close to the euro-era high of nearly 300 basis points.
The Spanish government has issued repeated reassurances that its programme of deficit cutting and austerity measures will be enough to keep the eurozone’s fourth-largest economy out of the crosshairs of bond market investors probing the financial solidity of other larger countries in the economic bloc.
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