UPDATE 2-Spain raises billions through new sovereign, corporate bonds

Tue May 13, 2014 1:48pm EDT

* Spain sells top end of target at T-bill auction

* Country's first inflation linker sees strong demand

* Bankia, Telefonica also in market for cash (Adds details of inflation-linked bond sale)

By Paul Day

MADRID, May 13 (Reuters) - Spain raised billions of euros for both public and corporate coffers on Tuesday, taking advantage of demand for euro zone peripheral debt as economic concerns ease and investors search for yield.

Spain introduced its first inflation-linked bond on Tuesday, sold 4.5 billion euros ($6.2 billion) of short-term debt at a T-bill auction while bailed-out bank Bankia and telecoms giant Telefonica also raised cash in the markets.

Investors have sought out Spanish debt this year against a backdrop of record-low interbank rates at the European Central Bank and optimism about an economic recovery. Yields have fallen to record lows while demand has soared across all maturities.

With investors scrambling for returns, Spain wasn't the only euro zone country in the market looking to take advantage of low rates on Tuesday.

"Today, we had Spanish and Belgium bills, linkers in Spain and in Germany and nominal bonds in Italy and the Netherlands. The fact that all of these have been well bought continues to show very supportive flows and the market mood continues to want to buy everything," said Jose Miguel Rodriguez, interest rate strategist at BBVA.

"This, together with more positive rating agencies and expectation of further accommodation by the ECB, points to further tightenings."

FIRST LINKER

The inflation-linked bond, a 10-year bill which pays a lower coupon than the benchmark plus EU-harmonised inflation (less tobacco), saw demand soar to over 20 billion euros before placing 5 billion euros, the Treasury said.

Nearly three-quarters of the issue was sold to non-Spanish investors like fund managers, banks and insurers, mostly from European countries, the Treasury said. French investors took up the biggest share with 21 percent.

The Treasury said the sale aimed to diversify the portfolio, increase the maturity of outstanding debt and take advantage of a liquid and deep market.

An official at the Treasury said Spain would consider another issue with a different maturity in the next few months after the successful sale which saw strong demand across Europe.

"I'm glad there was a lot of demand because it bodes well for future issuance. We want to be regular in this market," he said.

With the sale of the linker, the Treasury will have shifted more than half of its end-of-year target for medium- and long-term debt.

The Treasury also raised the top end of its targeted range at a scheduled T-bill auction, selling 4.5 billion euros of 6- and 12-month bills, with record low rates on the shorter-dated paper and near record low yields for the year-long bill.

In line with the Treasury's plan to extend average maturities, the auction focused on the 12-month bill, selling 3.3 billion euros compared to 1.2 billion euros of the 6-month.

Meanwhile, Bankia saw over 2 billion euros of orders for its first bank capital trade, according to IFR, a Reuters service.

Telefonica booked more than 3 billion euros for an 8-year benchmark, IFR said. ($1 = 0.7270 euros) (Editing by Susan Fenton and Janet Lawrence)