Spain expecting strong demand, lower borrowing costs at auction
* Spain to issue bonds due 2015, 2018 and 2041
* Results of auction due around 0940 GMT
* Yields on 2015, 2018 seen falling to around 10-month low
By Paul Day
MADRID, Jan 17 (Reuters) - Spain is expected to see strong demand and sharply lower yields at a triple bond sale on Thursday, boosted by improved investor sentiment toward struggling southern European economies.
The Treasury plans to tap the market for up to 4.5 billion euros ($6.01 billion) in bonds due to mature in 2015, 2018 and 2041.
If Spain sells the full amount, it will have completed almost 9 percent of its 2013 medium- and long-term gross debt plan in its first two bond auctions. Italy also took advantage of high demand and consequentially lower borrowing costs on Wednesday.
"From previous auctions, including that in Italy, it seems there's appetite for peripheral (euro zone) debt, and I've not seen any event to alter these dynamics," said Ioannis Sokos, a debt strategist at BNP Paribas.
"I don't think this will last for long. But, in the near term, we're in a risk-on mode and I see demand is there to cover the auctions."
Spain's refinancing costs have dropped by more than 2 percentage points on its 10-year benchmark since the height of the euro zone debt crisis in July last year and after the European Central Bank pledged to do everything necessary to protect the euro.
It was yielding just over 5 percent on Wednesday.
That pledge -- which included a promise to buy bonds if a country needed it after applying for a bailout -- meant investors were given something of a safety net.
Spanish Prime Minister Mariano Rajoy has been reluctant to take the political risk attached to applying for the aid which could trigger an ECB bond-buying plan, but investors are unwilling to bet against the shadow of potential central bank participation.
The government unloaded more-than-targetted amounts at both its first bond sale Jan. 10 and at a T-bill sale Jan. 15 this year. Large companies, virtually priced out of the debt market last year, have also rushed to place paper.
Spain aims to raise 121.3 billion euros in medium- and long-term debt in 2013, up 7.6 percent from 2012.
According to secondary market prices on Wednesday, a good indication of what investors will pay at the primary auction, the yield on the bond due Oct. 31, 2015, was expected to mark the largest drop of the three bonds from previous auctions.
The two-year issue last sold at an average yield of 3.358 percent at auction Dec. 13 compared with a yield of around 2.75 percent in the secondary market on Wednesday. A bond of that maturity hasn't sold at that level in a primary auction since March last year.
The bond due Jan. 31, 2018, last sold at a yield of 3.988 percent, compared with 3.8 percent in the secondary market on Wednesday, a level not recorded in 11 months.
The bond due July, 30, 2041, last auctioned in May 2011, was trading for 5.7 percent on Wednesday.
The near-30 year issue, and a bond due July 30, 2040 on Dec. 13. which went to market in December, are the longest dated paper to be auctioned in a year and a half.
While the average maturity of Spanish debt fell to 6.04 years in November from 6.61 a year earlier, the Treasury has said it aims to keep the maturity level at current levels through this year's issuance programme. $1 = 0.7492 euros)
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