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UPDATE 2-Spain bond auction demand suggests credibility rising
September 16, 2010 / 1:28 PM / 7 years ago

UPDATE 2-Spain bond auction demand suggests credibility rising

* Yields fall for French and Spanish issues

* Over 50 percent of Spanish bonds sold to foreign investors

* Demand strong even for longer 30-yr Spanish bond

* Successful auctions help push euro to month-high

(Adds details on forex market reaction, broadens lead)

By Nigel Davies

MADRID, Sept 16 (Reuters) - Spain comfortably sold four billion euros of long-term debt on Thursday, with strong foreign demand suggesting growing investor faith in the country’s deficit cutting programme and boosting the euro.

Spain sold 2.7 billion euros worth of 10-year, 4.0 percent coupon bonds and close to 1.3 billion euros worth of 30-year, 4.7 percent coupon bonds, coming in at the top end of a Treasury target.

Yields fell sharply from the last auction in June, reducing Spain’s borrowing costs even if they remain high compared with core euro zone country debt.

The successful auctions, seen as removing some of the debt risks attached to the euro, helped push the shared currency to its highest in more than a month at $1.3109. [ID:nLDE68F19F]

A source told Reuters that over 50 percent of the bonds were taken up by foreign investors. Earlier this year Spain was seen as heavily dependent on domestic buyers for its debt issues.

“It’s been a tremendous success and it improves the horizon for Spain’s issues heading into the final quarter. It seems that Spain is gaining more credibility in the market,” said a trader with knowledge of the Treasury’s sales.

Greece, whose finances are the most strained in the euro zone, has said that foreigners bought almost a third of its 1.2 billion euro sale of treasury bills on Tuesday, close to double the typical take-up by external investors.

Spain has been struggling this year to assure markets it will avoid the fate of Greece and is in control of slashing its public deficit which reached 11.2 percent of gross domestic product (GDP) in 2009.

The yield on Spain’s 10-year issue fell to 4.144 percent from 4.864 percent in June, while it eased to 5.077 percent from 5.908 percent on the 30-year issue.

Spain also confirmed on Thursday after the auction that it would issue eight bonds in the fourth quarter, including a new five-year benchmark bond. [ID:nMDT009343]

FRENCH SALES

Spain was the last country to go to the markets in a week of bumper euro zone bond issuance of around 30 billion euros ($39 billion).

Earlier on Thursday France sold 8.47 billion euros of debt with demand seen at the top end of the range and the average yield falling across all three issues.

Debt from core countries such as Germany attracted solid interest, while smaller treasury note issues from Portugal suffered from the heavy supply.

On Wednesday, Portugal had to pay sharply higher yields to sell 750 million euros of 12-month treasury bills, given concerns over the country’s budget discipline.

The French treasury sold 3.15 billion euros of September 2012 BTANs, 1 billion euros of July 2013 paper and 4.313 billion euros of July 2015 BTANs on Thursday.

“The results were OK. Again we saw demand at the top of the range. It makes sense because in August we had both (longer-term) OAT and BTAN auctions cancelled ... so demand was there. All in all, it was a good result,” said Ioannis Sokos, strategist at BNP Paribas.

Average yields fell for all three French issues, compared with a previous sale.

Around 10 billion euros of French BTAN bonds matured this week, providing funds for reinvestment.

Additional reporting by London bureau; Editing by Ron Askew/Ruth Pitchford

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