April 22, 2020 / 12:54 PM / 3 months ago

UPDATE 3-Spain breaks euro zone demand record with new 10-year bond

(Adds Spain’s Economy Ministry statement)

By Yoruk Bahceli

LONDON, April 22 (Reuters) - Spain received the highest level of orders ever for a euro zone bond sale on Wednesday, as governments offer attractive premiums on debt issues to fund ramped-up economic stimulus programmes.

The euro zone country raised 15 billion euros ($16.3 billion) via the sale of a new 10-year bond, receiving 97 billion euros of investor orders, a lead manager told Reuters.

Spain’s Economy Ministry said in a statement the orders were distributed among 560 investment accounts which were “highly diversified both geographically and by investor type”.

It said 79% of the total issue was made up of non-Spanish investors.

That’s the strongest demand ever for the sale of a single euro zone bond, surpassing the 58 billion euros Belgium attracted for an 8-billion-euro sale in March.

Euro zone governments are seeing a high level of demand in syndications this week, but analysts have expressed scepticism about how meaningful the high level of orders is.

“Order books have been consistently hitting record highs in syndications for quite some time; there is this order book inflation effect,” said Rabobank’s head of rates strategy Richard McGuire.

Bankers who organise bond sales for governments say that investors are having to inflate their orders to avoid receiving poor allocations on deals, given competition to get hold of bonds with central bank purchases crowding out investors.

HIGH PRICE

Syndications, where borrowers hire a group of banks to sell the deal, help tap a larger investor base and sell bonds in bigger size. Government borrowers are increasingly relying on them as they fund huge stimulus programmes to tackle the economic hit from COVID-19.

But such issuance is coming at a price. Spain, like other euro zone sovereigns which have used syndications, is paying up to attract investors to its debt.

Spain is paying a premium of around 12 basis points to its outstanding bonds, similar to Italy a day earlier, according to ING senior rates strategist Antoine Bouvet.

“This is the biggest reflection of the balance of power between buyers and sellers effectively; issuers feel like they have to issue wider than fair value because they are selling so many bonds. This is one of the reasons why we are seeing very high demand,” he said.

A big rise in the anticipated level of issuance means borrowers are having to pay more to entice investors to take on the debt than they did prior to the coronavirus outbreak.

Italy raised 16 billion euros on Tuesday with a dual-tranche syndication, receiving over 100 billion euros of orders.

Investor demand for Spain’s bond rose from over 38 billion euros when the sale first started earlier on Wednesday.

The bonds priced for a yield of 1.306%, 17 basis points over the country’s outstanding April 2030 bond, according to the lead manager, from 22 basis points when the sale started.

$1 = 0.9200 euros Reporting by Yoruk Bahceli, Additional reporting by Jesus Aguado in Madrid; Editing Emelia Sithole-Matarise, Mark Potter and Gareth Jones

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