Greek deal helps Spain T-bill yields back to pre-crisis levels

Right after an agreement was reached on a second bailout package for Greece in the early hours of Tuesday morning, the Spanish Treasury reveled in being able to sell government debt at a cost not seen since the euro-zone crisis broke close to two years ago.

The fact the European Central Bank is next week due to hold another extraordinary liquidity tender — one of the main factors behind growing appetite for euro-zone sovereign debt of late — also helped clear the ground for the Spanish Treasury’s auction of three- and six-month bills.

Economy Minister Luis de Guindos said Tuesday that Spain’s share of the 130-billion-euro bailout fund for Greece would amount to some 15.6 billion euros, largely in guarantees. But the Treasury might feel this is a small price to pay if the agreement helps calm the markets and reduce its borrowing costs.

The Economy Ministry’s debt-management agency sold 1.736 billion euros in bills maturing in May at a cut-off rate of 0.44 percent. That was the lowest yield paid for three-month paper by the Treasury since March 2010. Only a month ago, it was offering rates of 1.3 percent for three-month bills.

The Treasury sold a further 764 million euros in six-month bills at a cut-off rate of 0.78 percent, less than half the amount it was required to offer in January, with borrowing costs now on a par with those of April two years ago.

The total amount sold for the two legs of the auction matched the Treasury’s maximum target of 2.5 billion euros. Bids for the six-month bills exceeded the amount sold by over 10 times, compared with 6.87 times last month. The bid-to-cover ratio for the three-month issue was five times.

Since the start of the year, the Treasury has issued 35.5 billion euros in government debt, about a fifth of the gross total planned for the year.

Reuters quoted Nicolás López, the director of analysis at M&G, as saying that Tuesday’s tender shows the markets are returning to normality.

“The fact that yesterday the ECB revealed that it had not intervened the previous week by buying Italian and Spanish bonds is also a positive sign because it means that the prices in the market are real and not artificially sustained,” López added.