Treasury gets by tender hurdle at a price
Government exceeds target at T-bill auction but borrowing costs rise
The Spanish Treasury managed to sell more than it was initially aiming for at Tuesday’s bill tender but recent market turbulence pushed up the price it had to pay.
The debt-management arm of the Economy Ministry issued 3.08 billion euros in three- and six-month bills, compared with a maximum target of 3.0 billion. The marginal yield on the three-month issue rose to 2.650 percent from 2.500 percent from the previous tender on June 26. The cut-off rate on the six-month bills climbed to 3.960 percent.
“It’s positive news that they’ve issued the full amount, but it is only three months,” Bloomberg quoted Jamie Searle, a fixed-income strategist at Citigroup in London, as saying. “It is a relatively easy auction for them, as opposed to the bond auction, which will be a much tougher test.”
That bond auction is due to take place on August 2. The Treasury last week was forced to pay the highest yields on government bonds since the euro came into existence.
There are growing fears that Spain may have to seek a full bailout. Catalonia on Tuesday joined Valencia and Murcia in seeking financial assistance from the central government.
Yesterday’s auction took place just a day after Spain’s risk premium hit yet a new record high since the single currency was introduced in 1999 of 642 basis points. The yield on the benchmark 10 year government bond hit 7.625 percent on Tuesday. However, the spread with the German equivalent climbed only 6 basis points from Monday’s closing level to 638 basis points. That was because the yield on the German bund rose after Moody’s Investors Service put Germany’s sovereign rating under review with negative implications.
Demand for the three-month issue exceeded the amount sold by 2.94 times, up from 2.6 times at the auction held in June. The bid-to-cover ratio for the six-month issue climbed to 3.02 times from 2.82 times.
“The outcome was good, with bid-to-cover ratios above those for the previous tender when the risk premium was 100 basis points below the current level,” Reuters quoted Estefanía Ponte, director for the economy and strategy at Cortal Consors, as saying.