Spain cuts debt costs at bond auction

Improved investor sentiment towards struggling European economies helped Spain cut debt costs at a bond auction yesterday and allowed it to reach nearly 9 per cent of the year’s longer term borrowing needs.

Portugal and Ireland, both under bailout programmes from international lenders, also showed more signs of moving back into the mainstream market and shedding their previous debt-pariah status. The Spanish Treasury sold just over 4.5 billion euros of bonds maturing in 2015, 2018 and 2041, hitting the top end of what it hoped to sell.

It sold 2.4 billion euros in a 2015 bond and the yield, or borrowing cost, fell to 2.713 per cent compared with 3.358 per cent at the previous auction of that maturity. This was below 3 per cent for the first time since May 2012, when Spain’s risk premium started to spike and sent yields soaring.

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With the sale, Spain has completed close to 9 per cent of its 2013 medium and long-term gross funding needs in just two bond auctions.

“It’s encouraging that they achieved 4.5 billion euros which shows they are managing their issuance calendar so far this year without too much difficulty,” said Nick Stamenkovic, a strategist at Ria Capital Markets in Edinburgh.

“Most notably the ’41 longer-dated bonds were comfortably absorbed. That suggests to me that overseas investors are returning back to the (eurozone) peripheral bond markets.”

Spain’s financing costs have fallen by more than 2 percentage points on its 10-year benchmark since the height of the eurozone debt crisis in July last year.