* New syndicated issue demand at unprecedented 22.8 bln
* Final order at 7 bln euros
* Treasury draws strong demand, lower yields, at bill sale
By Paul Day
MADRID, Jan 22 Foreign investors piled into
Spain's new 10-year bond on Tuesday and the country also beat
targets at a short-term debt sale as it made the most of renewed
appetite for lending to the euro zone's weaker economies.
With Tuesday's sale, Spain has already raised around 14
percent of its 2013 funding target, while major sovereign debtor
Italy has raised around 10 percent.
Spain's budget gap is one of the widest in the euro bloc,
and the country is locked in recession with one in four of its
workforce unemployed and almost daily protests against painful
measures intended to curb government debt.
But with investors reassured by European Central Bank
policies and eager to pick up higher-yielding debt, Madrid sold
7 billion euros ($9.3 billion) of its new benchmark bond, which
had a coupon of 5.4 percent, the Treasury said. That compared
with 5.85 percent on Spain's previous benchmark.
The new 10-year bond - the first in more than a year - drew
demand of almost 23 billion euros, it said, describing the sum
Around 60 percent of that demand was from non-Spanish
residents, including just over a quarter from UK investors,
indicating a resurgence of interest from investors outside the
A government source close to the deal said Madrid chose to
cut off at the 7-billion-euro mark in order to leave appetite in
Spain, which has been at the sharp end of Europe's debt
crisis on concerns it cannot control its public deficit, also
looked to have trumped recent fundraising efforts by fellow euro
zone struggler Italy.
Rome sold 6 billion euros of a new 15-year bond on Jan. 15,
its first in two years, meaning both countries have already made
significant inroads into daunting 2013 funding programmes.
Using a strong syndicate for Tuesday's sale was "a good
excuse for Spain to show that they're not in trouble and don't
need a bailout," said Jo Tomkins, strategist at consultancy firm
Spain's budget gap is one of the widest in the bloc and the
spending cuts and tax hikes taken to narrow it have brought
judges, doctors, bus drivers and garbage workers onto the
streets to vent their anger.
Despite the cuts, Spain probably missed its deficit
reduction target for last year, although it remains largely on
track with its economic programme, the European Commission said
in a report published in Brussels on Tuesday.
Madrid's funding costs on international markets rose to
euro-era highs last July as traders demanded ever higher
premiums to hold the country's debt. Yields have since fallen
after the European Central Bank pledged to back struggling euro
zone states with bond purchases if needed.
Prime Minister Mariano Rajoy has resisted calls to apply for
European aid which would trigger the ECB programme as yields on
Spanish debt tumbled to more affordable levels.
"The ECB will bail them out if the current reforms and
austerity does not yield results. It's hard to say how long
(they have), no way is Germany not going to firewall Spain,"
said Skybridge Capital's Anthony Scaramucci speaking from Davos
in the Reuters Global Markets Forum. Skybridge is an alternative
investment firm with $7.1 billion of funds under management.
Spain's rush to raise money now in part reflects concerns
that political tensions, especially over Italy's February
election, could dampen market enthusiasm.
"I'm under the impression that the (Spanish) Treasury is
making the most of a benign market to increase its liquidity for
whatever comes in the future," economist at Cortal Consors
Estefania Ponte said.
Spain also raced to frontload issuance in early 2012 to make
the most of a flood of cheap loans to banks by the ECB. Spain
had completed almost 20 percent of its 2012 issuance plans by
this time last year, then struggled to sell significant amounts
in the latter part of the year.
But on Tuesday Spain also sold 2.8 billion euros worth of
short-term debt, beating the target amount for the auction and
paying the lowest average yields since March 2012. The yield on
the 3-month bill fell to 0.441 percent, compared with a peak of
2.434 percent when market tensions were at their height in July.
The final price on the 10-year syndicated bond was set at
midswaps plus 365 basis points, equivalent to a 5.4 percent
The Treasury last used syndication in February 2012 for its
current 10-year benchmark with a 5.85 percent coupon. The bond
was introduced to the market in November 2011.
At 1600 GMT, 10-year Spanish yields were about
level on the day at 5.17 percent, while comparable Italian
yields also were unmoved at 4.22 percent.