MADRID Jan 9 (Reuters) - Spain kicked off its 2014 bond issuance programme with a solid auction on Thursday, beating its target and cutting its borrowing costs as it tapped into surging demand for its debt.
The Treasury in Madrid sold a combined 5.29 billion euros ($7.19 billion) of a new 2019 bond and existing paper maturing in 2028, more than the 4 to 5 billion euros it had aimed for.
Signs that Spain's stuttering economic recovery is gaining traction, along with a broader revival of interest in peripheral euro zone debt, helped drive Spanish bond yields to four-year lows on Wednesday.
That also reflected optimism on financial markets that the Treasury would easily place the 242 billion euros it said on Wednesday that it planned to issue in 2014.
Madrid sold 1.76 billion euros of the October 2028 bond at an average of 4.192 percent, well down from the 4.809 percent the paper yielded the last time it was auctioned in September.
"The auction was a success," said Banco Sabadell trader Juan Rodriguez-Rey.
"Beyond the market effect, the most important reading is that the optimistic economic outlook being reflected in the lower spreads will enable companies to fund themselves more cheaply."
In another strong sign of the benign market conditions Spain is enjoying, state-owned banks Bankia and BMN returned to debt markets this week.
Spanish and other peripheral sovereign debt has been underpinned since summer 2012 by a European Central Bank pledge to support the euro, and investors will look for signals from the central bank on future monetary actions when it reports the outcome of its monthly rate-setting meeting later on Thursday.
Spanish 10-year bond yields were slightly up on Thursday, at 3.726 percent, but still close to their lowest level of the day before.
The country said on Wednesday it would issue slightly more debt this year than it did in 2013, but aimed to cut borrowing costs and broaden its investor base.
Thursday's sale also raised 3.53 billion euros of the shorter-term bond due in April 2019, at an average yield of 2.382 percent. The bid-to-cover ratio, a indication of demand, was 1.8.
In Paris, France's first sale of long-term debt this year drew firm investor demand on Thursday although the yield on its 10-year benchmark bond rose slightly from the previous sale two months ago.