SPAIN: Country passes a high-stakes debt test on with flying colours after seeing strong demand for its government bonds

Record ID: 830961

  • Title: SPAIN: Country passes a high-stakes debt test on with flying colours after seeing strong demand for its government bonds
  • Date: 8th June 2012
  • Summary: MADRID, SPAIN (JUNE 7, 2012) (REUTERS) VARIOUS OF TRADING FLOOR AT AHORRO CORPORACION PUBLIC DEBT DESK
  • Embargoed: 23rd June 2012 13:00
  • Keywords:
  • Location: Spain
  • Country: Spain
  • Topics: Economy,Politics
  • Reuters ID: LVA8YAXQUIPWVLG26EN1CVISK56E
  • Story Text: Spain passed a high-stakes debt test on Thursday (June 7) with flying colours after seeing strong demand for its government bonds.
    The country's treasury sold 2.1 billion euros ($2.62 billion) of medium- and long-term bonds, passing a key test of its ability to tap investors despite a minister saying earlier this week the country was being cut off from the markets.
    The yields were also higher than at recent sales.
    Investors said the market was taking into account the possible rescue of the Spanish financial sector, which is still not certain.
    "I think the market is pricing in a rescue fundamentally for the Spanish financial sector, not for the country itself," Javier Ferrer, head of the public debt desk at the brokerage Ahorro Corporacion said.
    Spain's risk premium -- the difference between benchmark German bonds and Spanish bonds -- has risen to record levels in recent weeks as investors fret about whether Spain will be forced to seek a full Greek style bailout for its banks or whether Germany will allow Madrid EU funds for its banks without the stigma of a full intervention.
    Spain says it is awaiting the outcome of an International Monetary Fund report on its banking sector and an independent audit of its banks' capital needs before deciding on any recourse to Europe to help recapitalise them.
    "This auction is important psychologically. The fact that there is strong demand for Spanish bonds at these yields facilitates the opening up of the markets not just for the Treasury but also for Spanish banks. I think the image that this exudes is very important, and it went well, it was very positive," Ferrer said.
    The Treasury sold 638 million euros of a 2-year bond, 825 million euros of a four-year bond and 611 million euros of a benchmark 10-year bond.
    The bid-to-cover ratios were higher than at recent auctions, with the 2012, 2014 and 2022 bonds covered 4.3, 2.6 and 3.3 times respectively.
    While the 2014 bond was issued at a yield of 4.335 percent, the 2016 bond at 5.353 percent and the 2022 bond at 6.044 percent, a lower price than the 6.14 percent the same maturity bond trades at in the secondary market.
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