* Ireland, Italy most likely to turn to US markets
* Spain plans to return with second bond as soon as possible
* Poor secondary performance may dull appetite, however
By John Geddie
LONDON, Feb 22 (IFR) - Spain believes its return to dollar
markets after a three-and-a-half year absence will inspire its
peripheral eurozone peers to diversify their investor base.
Of the USD2bn bonds allocated in Spain's five-year sale on
Wednesday, 95% were sold to investors outside of the eurozone -
and nearly half to US accounts.
"This transaction emphasises that we have full market access
to a broad base of investors, and it should support our eurozone
peers in approaching the dollar market," said Ignacio
Fernandez-Palomero Morales, deputy director of the debt division
the Spanish Treasury.
Italy is an obvious candidate to follow Spain's lead, as it
has a more extensive dollar curve but has not issued since
September 2010. Spain's last dollar trade was in September 2009.
The Italian Tesoro's 2013 outlook stated that it would
monitor the market for renewed signs of dollar investor
interest. In sight is the redemption of two bonds in June and
September 2013, for a combined total USD4bn.
Ireland, which has never issued in dollars, set up a 144A
debt issuance programme last year, following a flood of interest
from US accounts. Banks say Ireland is focused on issuing a new
10-year benchmark euro bond at the moment, but the establishment
of the programme makes Ireland a likely candidate.
Portugal also caught the eye of dollar investors when it
toured the States last month. However, with a funding programme
of just EUR5bn, the country is likely to remain focused on euros
this year, Portuguese debt agency chief João Moreira Rato said
Struggling eurozone member Slovenia issued its first-ever
dollar bond, a 10-year, late last year after euro investors
shunned the country.
POSITION OF STRENGTH
Access to the dollar market allows countries to tap into the
largest community of yield-hungry emerging markets funds.
Spain, whose 10-year yields still top 5%, certainly ticks
the right boxes for those accounts, while still having full
access to its domestic bond markets.
The morning after the dollar deal priced, in fact, Spain
sold more than EUR4bn of bonds via auction.
The investors across these two currencies are very
different, however. In Spain's 10-year euro syndication last
month, just 3% of bonds were allocated to the Americas.
But its dollar deal was 47% was sold into the US, alongside
notable placement in the UK, Asia and the Middle East.
NO COSTS INCURRED
Barclays, Citi, Santander and SG-CIB priced the 4% March
2018 bonds at mid-swaps plus 300bp, equivalent to 6bp through
Spain's euro curve after converting the currencies.
"Spain has been able to achieve investor diversification,
but crucially not by paying a premium to where it could issue in
its own currency," said Alex Barnes, head of SSA syndicate at
Even including swap costs, the deal was no more expensive
than issuing the equivalent bond in euros, said Morales at the
Dollar issuance is more than an opportunistic arbitrage
"Our plan is to go back to the dollar market as soon as
market conditions allow, possibly before year end, and build
back what was lost during the worst years of the crisis," said
Traditionally, Spain sold about EUR6-8bn in foreign currency
deals per year, mainly in dollars. Its total funding requirement
for 2013 is a hefty EUR120bn.
However, while countries will have taken a lot of confidence
from Spain's deal, their exuberance will be tempered by the fact
the bonds have not performed since pricing, said one observing
The morning after the deal priced, leads reported the new
bonds were trading 2-3bp tighter. However, over the course of
the afternoon some steady widening started to set in.
By Friday morning, the bonds were bid over 2bp wider on a
swaps basis at 302.2bp. Versus Treasuries, the bonds priced at
316.6bp, and by Friday morning were bid at 322.6bp.
(Reporting by John Geddie; editing by Marc Carnegie)