Treasury eases past latest debt issue test
Three-month bill yield falls below one percent as Salgado expresses confidence Spain can deal with likely ECB interest rate hike
Spanish Economy Minister Elena Salgado on Tuesday said Spain could absorb a hike in official interest rates "without problems" as the Treasury sold three-month bills at under 1 percent for the first time since before the Irish debt crisis came to a head in November of last year.
European Central Bank President Jean-Claude Trichet earlier this month indicated the ECB was ready to raise official rates in response to a jump in inflation as early as April. The ECB's key lending rate has been at 1 percent since May 2009.
"If [the rate hike] happens, it will depend on by how much, but in any case we can absorb it without difficulties," Salgado said in comments to Spanish radio station Onda Cero. "For sure, we will have another thing to deal with, but only in the short term."
The minister said as an "independent" body, the ECB's decisions should be respected, and countries should have faith in its determination "to do what it considers best for the euro zone."
In a report released Tuesday, the Organization for Economic Cooperation and Development said monetary authorities may not have to react to the hike in oil prices sparked by the conflict in Libya if inflationary expectations remain subdued.
Salgado's remarks coincided with an auction of three- and six-month Treasury bills. Spain's debt-management agency issued 1.208 billion euros in three-month paper at a cut-off rate of 0.929 percent, the lowest level since September of last year. At an auction of three-month bills a month ago, the Treasury had to pay 1.120 percent. Demand exceeded the amount issued by 4.3 times, compared with 3.3 times in February.
The Treasury also placed 842 million euros in six-month bills at a marginal rate of 1.376 percent, down 22 basis points on the previous tender of debt with the same maturity. The bid-to-cover ratio also rose to 7.6 times from 5.5 times.
Pressure on Spanish debt in the secondary markets has eased of late, most recently in the wake of European leaders' agreement this month to beef up the rescue fund for countries with debt problems.
Salgado said yesterday that the purpose of the European Financial Stability Facility, which is to be replaced by a permanent emergency mechanism in 2013, was to demonstrate to the markets that euro-zone countries in difficulties would receive help from their European partners.
It also emerged on Monday that Norway's state pension fund had tripled its exposure to Spanish government debt last year, with a portfolio worth 3.25 billion euros at the end of December.
Spain's risk premium has now fallen well below 200 basis points.
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