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UPDATE 2-Spain testing market for 10-year syndicated bond
January 21, 2013 / 3:06 PM / in 5 years

UPDATE 2-Spain testing market for 10-year syndicated bond

(Adds details on timing, analyst quote)

By Paul Day

MADRID, Jan 21 (Reuters) - Spain is testing the market for a 10-year syndicated bond, a government source told Reuters on Monday, in a push to make the most of a rise in investor demand for debt issued by struggling euro zone economies.

The economy ministry source could give no further details on when the new benchmark bond would be issued, its size or price guidance.

The issue could materialise as early as Tuesday, when initial price expectations are expected to emerge in the morning, said IFR Markets, a Thomson Reuters news and market analysis service, citing banks managing the deal.

Spain has been at the centre of the euro zone debt crisis because of fears it cannot control its public deficit, one of the highest in the euro zone, in the face of a prolonged recession and record unemployment.

But debt premiums for the euro zone’s weaker economies have fallen since European Central Bank head Mario Draghi assured markets the ECB would do all that is necessary to support the single currency last summer.

Spain’s sovereign has issued around 9 percent of its full-year gross issuance plans for bonds in just two auctions this year, while the country’s corporates including Telefonica , Santander and Iberdrola have also rushed to make the most of relatively benign market conditions to sell paper.

The yield on Spain’s current 10-year benchmark jumped more than 4 basis points on the reports of the syndicated bond to 5.15 percent, though remained a long way below the euro-era highs of over 7.5 percent in July of last year and the selloff soon slowed.

“It’s the right move. Last week’s auctions were pretty good, even for the long end, so the indication is that there will be demand,” debt strategist at BNP Paribas Ionnis Sokos said.

“I‘m curious whether they will do what Italy did by disclosing exactly who buys. If they don’t disclose the book, it’ll look suspicious. Who holds this debt is almost more important than the level of yield or the amount sold.”

Non-resident investors held 35.4 percent of Spanish sovereign bonds in November, the latest available data, down from around 50 percent through much of the history of the single currency.

Spain’s battered banks, meanwhile, increased their holdings of Spanish bonds to 34.5 percent from less than 17 percent a year earlier, fuelling worries of a vicious circle between the sovereign and its lenders.

Barclays, BBVA, Citi, Goldman, Santander and Societe Generale are bookrunners for the syndicated bond, IFR said. Buyers for syndicated bonds are lined up prior to the sale of the bond, in contrast with the more commonly used auction method where buyers place bids on the day.

Spain last marketed such a deal in February 2012, when it tapped a bond maturing in January 2022 with a 5.85 percent coupon.

“The market will closely scrutinise the volumes and the pricing, and until that is done question marks remain, but the positive for now is that the market hasn’t sold off in a disorderly fashion just on this headline,” said Michael Leister, senior strategist at Commerzbank in London.

“Arguably that might not have been the case in the summer last year.” (Additional reporting by William James in London and Sarah White in Madrid; Editing by Fiona Ortiz and Hugh Lawson)

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