* Spain plans sale of three-, five- and nine-year bonds
* Madrid to keep borrowing despite meeting 2012 funding need
* German Bund sale supported by risk-averse investor mood
By William James
LONDON, Nov 16 Spain is set to sell bonds next
week despite already reaching its 2012 funding target, cashing
in on investors' belief that the ECB will eventually have to buy
Thursday's auction of mostly short-term debt is the
highlight of a thin week of debt supply. Germany, due to sell
10-year bonds on Wednesday, is the only other euro zone country
scheduled to issue.
The Spanish sale of three-, five- and nine-year bonds is
expected to draw bids from loyal domestic investors and
international buyers who hold the view that Spain will
eventually need to request a bailout from its euro zone peers.
A bailout would unlock the European Central Bank's
much-anticipated bond-buying programme -- a prospect that has
enabled Spain to keep borrowing at affordable levels despite a
worsening recession and rising debt levels.
Even though Spain reached its 86 billion euro funding target
for 2012 earlier this month, analysts said it was likely to keep
tapping investors for as long as it could while rates are low.
"Of course they will continue with their funding over the
remainder of the year, no matter if 86 billion was their actual
funding need, or if they now use it for pre-funding (2013) or
filling up their cash buffers again," said Norbert Aul, rates
strategist at RBC Capital Markets in London.
The prospect of the ECB entering the market, bringing higher
prices and profits for those who bought at much cheaper levels
when stress peaked earlier this year, has kept yields low
despite Spain's fiscal and economic problems.
But, with the ECB only willing to buy short-dated bonds,
Spain still struggles to issue much long-term debt, increasing
the need to hold regular auctions and persuading many analysts
that Madrid cannot indefinitely resist seeking a bailout.
"Over the longer term Spain clearly has to think about how
they normalise their funding pattern and extend the maturity of
their debt stock," Aul said.
"That's something where an aid request certainly comes into
play. However we doubt this decision will come over the next
couple of days, or even weeks and might even take months."
Since 2010 the average maturity of Spanish debt has fallen
to 6.09 years from 6.62, and around 18.6 percent of the current
debt stock, including short-term treasury bills, is due to be
repaid in 2013, data from the Spanish Treasury showed. Nearly 40
percent of its debts fall due before the end of 2015.
BUND DEMAND SOLID
The Spanish uncertainty has suppressed investor appetite for
risky assets and this should provide ensure Germany's 4 billion
euro auction of 10-year debt on Wednesday is well received.
Spain aside, the looming prospect of recession-inducing
spending cuts and tax hikes in the United States and painful
delays to Greece's aid payments have helped push German yields
to their lowest levels since late August.
Ten-year yields sit at 1.31 percent, only 20
basis points from a record low touched in late July, while
investors are prepared to accept negative yields on two-year
debt -- effectively paying Germany to keep their money safe.
Analysts said that even if Tuesday evening's meeting of euro
zone finance ministers provides the long-awaited disbursement of
aid to Greece, Germany's auction was still likely to find
"Given the market environment it should go OK -- not as good
as the short-end auctions last week but I don't see a reason why
it would struggle," said Artis Frankovics, strategist at Nomura.
"Greece is not the only factor driving the risk-off
sentiment... the market will continue along it's current path."