UPDATE 1-Spain mandates banks for new euro 10-year benchmark bond

Wed Jun 11, 2014 9:38am EDT

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By Sarka Halas

LONDON, June 11 (IFR) - The Kingdom of Spain is back in public bond markets with a new 10-year benchmark, less than a month after it sold an inflation-linked bond at the same maturity.

The sovereign announced plans for the new benchmark and at the same time offered holders of three notes due in 2015 a switch into the new issue.

The three notes are the 3% due April 2015, the 4% due July 2015, and the 3.75% due October 2015.

The new benchmark comes amid a peripheral rally that has been gaining momentum since the European Central Bank introduced a battery of measures that should be helpful to peripheral economies, including Spain.

"There has been warm sentiment all year towards the periphery, and that has recently been boosted by the ECB," said a syndicate official working on the deal.

"This issue was very much expected, they need to do another issue, but we needed to leave a little time after the reaction to the ECB measures announced last week," said the banker.

The rally in peripheral yields since the start of the year is evidence of how much more comfortable accounts are with risk in countries like Spain.

Spain's 10-years are currently trading at 2.65%, even lower than the 2.91% seen when the country announced the 10-year inflation-linked issue sold back in May.

Demand for the 5bn 1.80% April 2024 issue surpassed 20bn, with investors keen to gain exposure to a eurozone economy that is at last showing signs of picking up steam after years of being stuck in a rut.

Spain was upgraded by one notch on May 23 by S&P and is now rated Baa2/BBB/BBB+. Economic activity in Spain continues to improve, with April industrial production up by 4.3% year on year, while May registered employment fell by 112,000.

The leads for both the new issue and the liability management exercise are CaixaBank, Citigroup, Credit Agricole, HSBC, Morgan Stanley and Santander.

Spain will set initial price thoughts at 1600 CET today ahead of formal guidance on Thursday morning at 0900 CET and pricing later that afternoon. (Reporting by Sarka Halas, additional reporting by Helene Durand and Alex Chambers, editing by Julian Baker)

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