Spain raises nearly twice target in bond sale

15th December 2011, Comments 0 comments

Spain enjoyed a bumper bond sale on Thursday, raising nearly twice the amount targeted as it snatched the chance to lock in competitive borrowing rates in the swirling eurozone debt crisis.

Spain's treasury raised 6.0 billion euros ($7.8 billion) -- far above its original 2.5-3.5 billion euro target -- in the closely watched auction, the Bank of Spain said.

Demand far outstripped the original target, with investors clamouring for a combined total 11.234 billion euros of the four-, nine-, and 10-year bonds that were on offer.

The result allowed the eurozone's fourth-biggest economy to mark its distance from crisis-engulfed Italy, which was forced to pay record high borrowing rates in a bond sale just a day earlier.

"This week's debt auctions suggest that Italy is in front of Spain in the financial markets' firing line," said Kathleen Brooks, research director at trading site in London.

"Italy is likely to face much more pressure than Spain in the first quarter next year," she said.

Italy had 112 billion euros of debt to refinance between January and March next year compared with 32 billion euros for Spain in the same period, she said.

"Italy's re-financing schedule is front-loaded next year, compared with Spain's which doesn't peak until July," Brooks added.

"This increases the risk of a failed Italian bond auction next year, which is keeping investors more nervous of Italy compared with Spain right now," she said.

Investors have shown concerns this year over Spain's debt because of doubts over its ability to repay borrowers at a time of bulging deficits and an economic slump that has created a 21.5-percent jobless rate.

Spain's right-leaning Popular Party soundly beat the ruling Socialists in November 20 elections and will take power next week, vowing to cut the deficit and boost jobs.

The country is seeking to slash its total public deficit from 9.3 percent of gross domestic product last year to 6.0 percent of GDP this year, 4.4 percent in 2012 and 3.0 percent -- the European Union limit -- in 2013.

In the bond auction, Spain paid a borrowing rate of 5.545 percent for the 10-year bonds, 5.201 percent for the nine-year bonds and 4.023 percent for the four-year bonds.

When compared to the last comparable auctions in previous months, those borrowing costs were sharply lower for the four-year bond and only slightly higher for the nine- and 10-year bonds.

The rates were competitive with those charged on the open market.

"It was a very strong auction," said Alberto Matellan Pinilla, director of strategy and macroeconomy at Spanish brokerage Inverseguros.

Spain grabbed the chance to raise more money than anticipated, Matellan said.

"They saw there was a lot of demand and they could place it very well and that is why they decided to sell more," he added.

"It is very positive."

The auction means Spain is still able to finance its operations by borrowing on the financial markets, even if rates have climbed significantly over the past year.

© 2011 AFP

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