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UPDATE 1-Brace of Spanish bond yields hit pre-crisis lows at auction
March 20, 2014 / 11:32 AM / 4 years ago

UPDATE 1-Brace of Spanish bond yields hit pre-crisis lows at auction

(Adds comment, detail, French sale)

MADRID, March 20 (Reuters) - Spain’s borrowing costs over five and 15 years fell on Thursday to their lowest at auction since the economic crisis began, as yield-hungry investors brushed off prospects of an early rise in U.S. interest rates.

Spanish debt has become increasingly popular among bond traders as concerns over the financial health of the euro zone peripheral economies abates and the country shows signs of emerging from a prolonged downturn.

The Treasury sold 5 billion euros ($7 billion) of three bonds on Thursday, the top end of the target range of between 4 billion and 5 billion euros. It said it had now raised a third of the debt it aimed to sell in the whole of 2014.

“It’s a sign of investor confidence in our economy and will help finance the rest of the economy,” Economy Minister Luis de Guindos told journalists following the auction.

Prior to the auction, government bond yields rose in Spain and the wider euro zone, following overnight comments from the Federal Reserve suggesting U.S. interest rates might rise sooner than expected.

Analysts predicted that might crimp demand at the bond sale.

But offer outstripped supply by more than four times for the April 30, 2017 bond - though the Treasury sold just 1 billion euros at an average rate of 1.331 percent, slightly above the 1.309 percent paid at the last auction of the same paper.

The Treasury has said it aims to take advantage of renewed interest in its paper and extend the average maturity by focusing on longer-dated debt. State debt had an average maturity of 6.32 years in February compared to 6.2 years at the end of 2013.

The April 30, 2019 bond saw similar demand to the last time it ran in February, selling this time at an average rate of 1.991 percent, the lowest in the history of the euro zone for a Spanish bond of that maturity.

The longest-dated bond, due Oct. 31, 2028, saw average yields fall to 3.846 percent, the lowest since 2005.

Secondary market yields on the Spanish 10-year benchmark bond have fallen to below pre-crisis levels this month and were at around 3.371 percent on Thursday, way below a peak of over 7.6 percent at the height of the euro zone crisis in 2012.

Borrowing costs have also dropped for Spain’s large companies and banks, which have been selling bonds at lower rates to help refinance their debt piles. Lender Santander and energy company Abengoa were the latest to take to the markets on Thursday.

The revival in investor interest in debt from the weaker euro zone countries began in 2012 after European Central Bank Governor Mario Draghi said the bank would do all within its power to protect the monetary union.

“This was yet another strong auction for Spain with investor appetite no doubt arriving from the continued backstop bid provided by the ECB and renewed risk appetite for peripheral debt, as even Greece looks set to enter the bond market before the second half of the year,” said 4Cast strategist Bhavisha Patel.

In Paris, demand was also firm at a sale of two-, three- and five-year French debt. The longest-dated bond yielded 1.06 percent, unchanged from a month ago.

$1 = 0.7189 Euros Reporting by Paul Day, Additional reporting by Elisabeth O'Leary; Editing by John Stonestreet

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