* Treasury sale hit mid-range of target amount
* Yield helped by ECB purchases of periphery debt
* Bond seen reasonably well bid, but demand down from July
* France sells 7.8 bln euros of bonds
(Adds details, comment)
By Nigel Davies
MADRID, Sept 1 Spain's first bond auction in a
month drew lukewarm demand on Thursday, forcing it to pay a high
premium to place 3.6 billion euros of new five-year paper
despite European Central Bank support on secondary markets.
The amount sold was just above the middle of its target of
between 3 billion and 4 billion euros, but demand was down on
previous sales and the Treasury paid around 20 basis points
above the yield of an existing five-year paper to get the bond
German Bunds -- used by investors as a safe haven from the
troubles of the euro zone's indebted periphery -- hit their
highest on the day after the sale.
The Spanish bond's path was eased, as in Italy's auctions on
Tuesday, by ECB purchases aimed at stopping the debt crisis from
engulfing the bloc's larger states. For Spain alone borrowing
costs have fallen on its ten-year debt by over 100 basis points
in the last three weeks.
Separately, France saw few problems as it sold 7.8 billion
euros in three bonds which analysts said were well-received.
The average yield on the Spanish bond was 4.489 percent,
compared with a 4.25 percent yield on a different 5-year bond
with a different coupon, on the secondary market late on
The new issue was reasonably well bid in the market, with a
bid-to-cover ratio of 1.8, but that was down on the 2.9 seen at
Spain's last auction of five-year debt in July.
"Overall we regard the auction result as disappointing, with
Spain paying a large concession on the market to sell the new
bond and declining demand," said Chiara Cremonesi, analyst at
The ECB has bought around 43 billion euros worth of debt
since it reactivated its bond-buying programme, helping to lower
financing costs of struggling euro zone states.
However, market volatility and a lack of final agreement
over Greece's second bailout package and an extension of the
European Financial Stability Facility (EFSF) will keep markets
nervous for some time.
Analysts believe Spain could not afford borrowing costs of
more than 7 percent over a long period without eventually being
forced to take a bailout like Greece or Portugal.
Spain has scrambled to pass new austerity measures in the
last two weeks to help meet its tough public deficit cutting
target this year, while it also plans to include a deficit
capping measure in its constitution.
(Reporting by Nigel Davies; editing by Patrick Graham)