* Auction shows investors willing to take on longer-term
* Could help government delay expected aid request
* Treasury can now focus on 2013 financing needs
* Foreign investors buy about a third in recent auctions
By Nigel Davies
MADRID, Nov 8 Spain showed on Thursday that
investors will buy even its long-term debt, with a successful
bond auction that completed its 2012 issuance programme, giving
the government breathing room to hold out before requesting
Most analysts still think Spain will need to call on the
European Central Bank's firing power before long, but the smooth
auction could prompt Prime Minister Mariano Rajoy to wait longer
than expected before seeking a bailout.
The auction of 4.8 billion euros of bonds raised more than
the targeted amount of up to 4.5 billion. Finishing the 2012
bond issuance programme ahead of schedule allows the Treasury to
start making headway on its plans for next year, when it needs
to raise 207 billion euros for its own needs and some 20 billion
more on behalf of indebted autonomous regions.
Thursday's sale included longer-term bonds for the first
time in a year and a half, a sign that investors are prepared to
bet over a longer horizon on one of the economies worst hit by
the euro zone crisis, mired in prolonged recession.
However those 20-year bonds, which raised 731 million euros,
yielded 6.328 percent, high by historical standards.
The bulk of the sale - 3.04 billion euros - came from a new
5-year bond yielding 4.680 percent. The Treasury's borrowing
cost fell on a 2015 bond, which sold 992 million euros at an
average 3.660 percent yield, compared with a 3.956 percent yield
when last sold on Oct. 4.
The government says about a third of bonds at recent
auctions have been bought by foreigners, an encouraging sign
after months in which they treated Spain as a pariah.
"It will reinforce the government's view that there's no
need for a bailout at this juncture, but as the refinancing
needs of 2013 come to the fore, I think they'll be forced into
the hands of the ECB," said Nick Stamenkovic, rate strategist at
Ria Capital Markets.
Spain's economy sank back into recession at the end of last
year, and is not expected to grow again until 2014, complicating
the government's objective to slash its public deficit while it
also cleans up a banking sector messy with bad property loans.
While Thursday's auction was largely seen as a success,
Spanish bond yields jumped after the auction as markets digested
the high volume of extra debt.
Spanish 10-year yields rose 13.4 basis points
to 5.86 percent after the auction, their highest since
mid-October, as the market struggled to absorb the new supply.
The Treasury has reported an uptick in foreign demand at
Spanish debt auctions as the ECB's bond plan has provided some
sort of backstop for the country's debt issuance.
An Economy Ministry spokeswoman said recent auctions showed
around a 35 percent participation from foreign investors,
although she did not give specific figures for Thursday's sale.
Bank of Spain data showed foreign investors increased their
holdings of Spanish debt in September for the first time since
Oct. 2011, to 35 percent of the total of outstanding debt. That
had fallen from 55 percent at the end of 2010.
A source familiar with Thursday's auction said that most of
the demand for the new long-term debt came from big, mainly
domestic institutional investors rather than banks.
Yields for Spanish debt have come down sharply in recent
months from levels hit in July and seen as unsustainable. The
relief came after the ECB announced in September plans to buy
bonds from troubled euro zone countries and serve as a lender of
Yet premier Rajoy has been holding out from calling for a
rescue package. On Tuesday he said a rescue would not make sense
unless it reduced the country's debt spread over the German
benchmark to around 200 basis points.
Investors had been expecting Spain to make a rescue request
before year-end. Some now believe it could be postponed at least
until after a key regional election in economically powerful
Catalonia on Nov. 25, or even until 2013.
"After a time, unless the ECB actually starts to act - or
Spain acts to allow the ECB to act - then maybe the market may
take Spain to task, start pressuring yields higher. One suspects
that will not happen before year-end," said Marc Ostwald,
strategist at Monument Securities.