Spain Sells Maximum Target of 3 Billion Euros in First Bond Sale of 2011

Spain sold 3 billion euros ($3.95 billion) of bonds in its first debt auction of the year, meeting its maximum target as demand increased.

The Treasury sold the five-year bonds at an average yield of 4.542 percent, the Bank of Spain said, compared with 3.576 percent the last time the securities were auctioned on Nov. 4. Similar-maturity bonds traded at a yield of 4.630 percent before the auction and demand was 2.1 times the amount sold compared with 1.6 times at the previous sale.

Italy, the euro-region’s second most-indebted nation, sold 6 billion euros of bonds due in 2015 and 2026. The shorter-dated notes yielded an average 3.67 percent, compared with 3.24 percent in November.
Spain’s 10-year borrowing costs, which rose to the most in a decade on Jan. 10, fell for a third day today as European leaders considered bolstering the region’s bailout facility. The extra yield investors demand to hold the Spanish securities over German equivalents dropped to 234 basis points after the sale, down from 240 basis points yesterday and a euro-era high of 298 basis points on Nov. 30. The average was 15 basis points during the euro’s first decade.

‘Quite Pleased’

“I think the Spaniards will be quite pleased they got it away with a very high bid-to-cover ratio of 2.1, which is impressive and bodes well for future auctions,” Georg Grodzki, head of credit research at Legal & General Investment Management, said in an interview on Bloomberg Television’s “The Pulse” with Andrea Catherwood. “Only a few days ago it looked as if they could fail.”

European governments are considering aid for Portugal, debt buybacks and lower interest rates on loans from the region’s bailout facility as part of a package to quell the financial crisis, according to four people with direct knowledge of the talks. Euro-area finance ministers will discuss elements of the package next week at a meeting in Brussels. The European Commission is considering a proposal to double the size of the 750 billion-euro bailout fund, Expansion reported today, citing people it didn’t identify.

Spain’s Socialist government, which faces its first bond redemptions in April, is trying to prove to investors it can slash the region’s third-largest deficit to 6 percent of gross domestic product this year from 9.3 percent in 2010, and shore up its struggling savings banks. The country faces repayments of 15.5 billion euros in April, data compiled by the Treasury show.

To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net.