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REFILE-Spain yields hit 4-year lows, 2014 issuance seen comfortable
January 8, 2014 / 12:45 PM / 4 years ago

REFILE-Spain yields hit 4-year lows, 2014 issuance seen comfortable

* Spanish yields hit new four-year lows

* Spanish bond shrug off plans for higher 2014 issuance

* Irish yields near eight-year troughs

* Rally fuelled by growth expectations, strong Irish sale

By Marius Zaharia

LONDON, Jan 8 (Reuters) - Spanish bond yields hit new four-year lows on Wednesday as markets took an increase in Madrid’s planned 2014 debt issuance in their stride, confident a pick-up in economic growth would ensure sales go smoothly.

Data this year has shown Spain’s economy recovering. Its services sector grew at its fastest in more than six years in December and the number unemployed fell by 2.24 percent.

Indicators elsewhere have also been positive, and expectations that the European Central Bank will keep interest rates low for a long period or even cut them further, have supported high-yielding euro zone.

Strong demand on Tuesday for Ireland’s first bond sale since it exited its EU/IMF bailout also boded well for Madrid’s issuance strategy.

Despite Spain planning to sell 133.3 billion euros in medium- and long-term bonds this year, up from 128.4 billion in 2013, its 10-year bond yields fell 3 basis points to 3.78 percent - their lowest since late 2009.

Spanish yields have fallen almost 40 bps this year.

“The market is less concerned about (the increase in debt supply) because of improving conditions in general,” said Annalisa Piazza, market economist at Newedge. “We’ve seen Ireland going back to the market, Portugal is expected to follow ... everything is going in the right direction.”

Notably, she said, the debt sales target had increased because of a rise in debt repayments rather than a higher budget deficit, which is expected to fall.

Plans to issue inflation-linked debt were also expected to ease the supply pressure on its conventional bonds.

“Spain would be a welcome new entrant into the euro inflation-linked bond market. It would enable Spain to diversify its investor base,” said Citi strategist Nishay Patel, who expects Spain to issue about 5 billion euros in inflation-linked debt this year.


Newedge’s Piazza expected Spain to try to sell more debt early in 2014, as it has in recent years, as investors look to reinvest about 15 billion euros in redemptions this month.

Madrid plans to sell up to 5 billion euros in bonds on Thursday, which would be the largest sale in almost a year.

Analysts expect lower-rated states to attempt syndicated deals after Ireland sold 3.75 billion euros of 10-year bonds.

Some analysts warn investors may demand higher yields if a large volume of peripheral bonds hits the market in short order.

“That is something to be wary about,” Nordea chief fixed income strategist Jan von Gerich said. “When we get the next announcements of a syndicated debt issue in Spain, Italy or Portugal that will affect the market.”

Elsewhere, Irish yields dropped 1 bps to 3.27 percent, just shy of Tuesday’s eight-year low of 3.26 percent. The fall in equivalent Portuguese and Greek yields was more pronounced, as Ireland’s sale encouraged investors to bet on other bailed-out euro zone states following suit.

Ten-year Portuguese yields fell 8 bps to 5.34 percent, having earlier hit their lowest since May at 5.29 percent, while Greek 10-year yields fell 13 bps to 7.68 percent, the lowest since the bonds were issued as part as a debt restructuring in March 2012.

Yields on top-rated German Bunds, the euro zone’s benchmark, fell 1 bps to 1.88 percent.

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