UPDATE 2-Investors lap up Spanish bonds, recovery gathers pace

Thu Jan 16, 2014 12:32pm EST

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MADRID Jan 16 (Reuters) - Spain sold more debt than planned at a triple bond auction on Thursday, taking advantage of falling borrowing costs and sustained investor appetite for its debt as a tentative economic recovery gathered pace.

The Treasury started to front-load its annual issuance programme by selling 5.92 billions euros of bonds due in 2017, 2026 and 2028, above the target range of 4.5 to 5.5 billion euros.

Demand for the mid- and long-term paper, albeit strong, was lower than at the most recent auctions while yields fell on the 2017 and 2026 bonds but were slightly up on the 2028 one.

Spanish debt has been supported since mid-2012 by a European Central Bank pledge to defend the euro, consistently low returns on higher-ranked debt and signs in recent weeks that the country's economy is turning the corner.

Government officials in Madrid said this week that despite subdued domestic consumption and high unemployment, the recovery was building up at a faster pace than expected and that 2014 growth forecasts would likely be revised up.

In another sign economic activity was improving, the world's second-largest retailer Carrefour said sales in Spain returned to growth in the fourth quarter for the first time since 2008.

Sales rose 0.2 percent like-for-like in the firm's third-largest market, supported by a Christmas bonus to civil servants being paid this year after having been suspended in 2012.

Labour Minister Fatima Banez said on Thursday at a parliamentary hearing the labour market had bottomed out and fewer jobs were being destroyed.

"We hope to see very soon, in the next few weeks, positive year-on-year data on job creation for the first time since the crisis started," she said.

LOT TO BE DONE

Economy Minister Luis de Guindos, while saying growth was picking up, cautioned a lot remained to be done for the recovery to be felt by everybody in Spain.

He announced he would soon travel to London, New York, Tokyo and Hong Kong to meet potential investors in Spanish debt.

Analysts and traders said Thursday's auction had been solid although they were less impressed by the results than at a similar sale last week.

"Demand was not as high as at the last auction because, like the Italians, they sold more volume on the shorter-term bonds to take advantage of their lower costs," said Banco Sabadell trader Juan Rodriguez-Rey.

"On a 1 to 10 scale, the auction is worth an 8 grade. It was not as stunning as the last one but investors' appetite for the debt remains."

The Treasury sold 2.66 billion euros of the 2017 bond at an average yield of 1.595 percent compared with 2.182 percent when it last sold on Dec. 5. The bond was 2.2 times subscribed after 3.6 times last month.

The 2026 bond sold 1.81 billion euros at 3.977 percent after 4.469 percent on Nov. 7, with a bid-to-cover ratio of 1.4 after 2.4 at the previous auction.

The 2028 bond sold at 4.199 percent, up from 4.192 percent on Jan. 9. The Treasury sold 1.44 billion euros of the paper which was 2.0 times subscribed compared to 2.7 last week.

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