Spanish Treasury enjoys successful bill auction

Borrowing costs fall as demand remains healthy, but risk premium still suffering from doubts over euro deal

The Spanish sold more in short-term paper than it was targeting as borrowing costs fell on heavy demand at Tuesday's auction, the first after the European Union summit in Brussels.

The government's debt-management agency sold 4.94 billion euros in 12- and 18-month bills when it was only looking to issue up to 4.25 billion euros.

It sold 3.443 billion euros in 12-month bills at a cut-off rate of 4.088 percent, well below the 5.2 percent paid at the previous tender on November 15, the highest for paper of this maturity since 1997. Demand for the issue amounted to 10.825 billion euros.

It sold a further 1.498 billion euros in 18-month bills at a marginal rate of 4.25 percent, compared with 5.32 percent in November. The bid-to-cover ratio for the issue was 4.97 times.

More information
Renewed doubts hit euro-zone stock and debt markets

"A positive set of Spanish auction results but providing only temporary relief given the ongoing systemic issues and related downgrade threat besetting the region," Bloomberg quoted Richard McGuire, a fixed income strategist at Rabobank in London, as saying. "These sales represent a temporary stay of execution."

Summit outcome doubts

Up to 26 EU members agreed at the Brussels summit to move toward greater fiscal union, with Britain exercising its veto to have this move included in a new EU treaty. Judging by the sharp fall in share prices and the rise in risk premiums on Monday, investors consider what was agreed in Brussels to have fallen short of what is required for a definitive solution to the euro-zone sovereign debt crisis.

"After the latest EU crisis meeting it is clear that politicians are responding to the euro-zone sovereign debt crisis through incremental improvements," ratings agency Fitch said on Monday. "It seems that a 'comprehensive solution' to the current crisis is not on offer."

However, Reuters quoted M&G analysis director, Nicolás López, as saying on Tuesday: "In my opinion, the summit achieved significant advances in the area of homogeneity and fiscal rigor, and this will manifest itself in the future; but the fact is that many things have to be implemented, and that takes time and creates uncertainty."

The financial markets were somewhat steadier on Tuesday, The spread between the yield on the benchmark 10-year government bond and the German equivalent closed down 9 basis points at 367 basis points after hitting a high of 385.

After swinging in and out of positive territory throughout the session, the Spanish blue-chip Ibex 35 eventually closed down 0.63 percent at 8,327.80 points, led by the banks. Santander shed 1.47 percent, BBVA was down 2.30 percent, while Caixabank lost 2.34 percent.

Recomendaciones EL PAÍS
Recomendaciones EL PAÍS