Treasury gets through first tender hurdle in a challenging month

The Spanish Treasury fell just a tad short of its maximum issue target at Thursday’s bond tender as the government of Prime Minister Mariano Rajoy continued to debate the merits and political fallout from asking for a second bailout on top of the one to recapitalize the country’s banks.

The debt-management arm of the Economy Ministry sold 3.992 billion euros in two-three- and five-year bonds when it was looking to issue up to four billion. Rajoy’s musings continue in what will be a difficult month for the Treasury, with over 29 billion euros in bonds due to mature.

The Treasury sold 1.287 billion euros in three-year debt at a marginal yield of 4.028 percent, up from 3.910 percent at an auction held in September. The bid-to-cover ratio rose to 1.98 times from 1.5 times the previous months.

Borrowing costs for the two- and five-year issues were decidedly lower than at the previous auction in July when tension in the secondary market was decidedly more marked before the European Central Bank’s announcement that it would be renewing its bond-purchasing program.

The Treasury sold 1.284 billion in bonds maturing in October 2014 at a cut-off rate of 3.391 percent, down from 5.302 percent at the tender held three months ago. The marginal yield for the five-year issue was set at 4.828 percent, down from 6.540 percent previously, with 710.4 million euros of paper sold. The bid-to-cover ratio for the two-year bonds rose to 2.03 from 1.9 times in June, and in the case of the five-year issue to 2.47 times from 2.06 in July.

Catalan premier Artur Mas, who is at odds with Rajoy over regional funding and what he claims is an inequitable distribution of the burden of reducing the public deficit between the central government and the regions, said Wednesday that a bailout was inevitable. A request for assistance from the European rescue funds is a prerequisite for triggering bond purchases by the ECB.

Rajoy, who has acquired a reputation for vacillation, may be biding his time on the bailout decision until after elections later this month in Galicia, in which the ruling Popular Party is looking to hold on to power.

At 12.30pm, the yield on the Spanish 10-year government bond was up slightly at 5.869 percent as the spread with the German equivalent rose five basis points to 442.5.