* Spain aims to raise up to 5.5 bln euros of bonds
* Madrid selling bonds for second consecutive week
* Economic outlook, bond repayments supporting demand
By Emelia Sithole-Matarise
LONDON, Jan 16 Spanish yields dipped on Thursday
before a debt auction which was expected to fare well as
investors were likely to plough back large debt repayments into
lower-rated euro zone bonds.
Madrid is setting a brisk pace for its 2014 funding
programme and offers up to 5.5 billion euros of 2017, 2026 and
2028 bonds, a week after raising an above-target 5.3 billion
euros at an auction of 5- and 15-year bonds.
Debt sales from euro zone countries have come thick and fast
in the first two weeks of this year as lower-rated euro zone
states seek to take advantage of improved market sentiment and
frontload their 2014 fundraising.
The glut of bond supply has tempered a sharp rally in
peripheral euro zone debt but has not reversed it, a feat which
analysts say was due to an upbeat economic outlook for the
region fuelling investor demand for higher-yielding bonds.
Euro zone borrowers are also benefiting from over 50 billion
euros in debt repayments hitting the market this week.
This is the first January since 2008 when euro zone debt and
coupon repayments exceed expected debt supply from the region,
according to Barclays. The difference is 10 billion euros,
compared with a negative 23 billion euros in 2013.
"Sentiment is quite positive on periphery bonds and Spain is
one of the bright spots there with quite important improvements
in the economy," said ING strategist Alessandro Giansanti.
He was referring to comments by Spanish Economy Minister
Luis de Guindos this week that the economy probably grew by
about 0.3 percent in the fourth quarter of 2013. This was its
fastest pace since 2008 which showed the euro zone's fourth
largest economy was recovering more briskly than initially
MORE SCOPE FOR RALLY
"We are starting to see a revival of demand from Spanish
banks and that's a difference from what we've seen in the last
months of 2013 when they were selling some of their debt.
There's also demand from non-domestic investors. That should
support the rally for Spanish bonds," Giansanti added.
Spanish 10-year yields fell 1.3 basis points
to 3.76 percent, grinding back towards five-year lows just below
2.70 percent plumbed last week.
Although Spain's 10-year yield premium over German
benchmarks has bounced off from 2011 lows below 180 basis
points, many analysts expect them to resume their fall in coming
days with a slew of Spanish debt repayments at the end of the
month expected to be reinvested into the market.
"Relative value considerations aside, we think the periphery
rally has much further to go and expect these auctions to go
well, despite the lack of pre-auction cheapening," Credit
Agricole strategists said in a note.
Yields on other peripheral euro zone bonds were also lower,
with Portuguese 10-year yields down 4 bps at 5.17
percent. They fell to their lowest in more than three years on
Wednesday after Lisbon said it expected to resume bond auctions
in the first half of 2014 as it prepares to exit its
international bailout programme.
Italian equivalents were 1.1 bps down at 3.86
percent while top-rated German 10-year yields were
lower by a similar amount at 1.82 percent.