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Treasury eases past bill tender

ECB’s Draghi to explain debt market intervention program to Spanish lawmakers in Congress at the beginning of next year

Foreign investors’ appetite for Spanish sovereign debt remained healthy at Tuesday’s auction of Treasury bills, with the amount issued exceeding the maximum target set at lower borrowing costs.

Before the auction there was a brief spike in the risk premiums of Spain and Italy after Silvio Berlusconi slammed the solvency indicator as a “fraud” that “nobody cares about.” The differential between the Spanish and Italian benchmark 10-year government bonds and the German equivalent had risen on Monday after Prime Minister Mario Monti over the weekend said he was resigning after losing the support of Berlusconi’s party.

The Treasury sold 3.89 billion euros in 12- and 18-month bills, compared with a maximum target of 3.5 billion, with demand exceeding the amount issued by 2.5 times. Specifically, it issued 2.385 billion euros at a cut-off rate of 2.650 percent, down from 2.850 percent at an auction held on November 20. It sold a further 1.504 billion euros in 18-month debt, with the marginal yield easing to 2.880 percent from 3.077 percent.

After the debt auction, Spain’s risk premium was trading at 419 basis points, down eight from Monday’s close.

A sharp and sustained sell-off in Italian debt would almost certainly drive up Spanish yields"

“Spain has for the time being brushed off concerns about possible contagion from Italy,” Bloomberg quoted Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, as saying. “However, a sharp and sustained sell-off in Italian debt would almost certainly drive up Spanish yields and heap further pressure on Spain to request a European Central Bank-backed bond-buying program.”

The Treasury said it had issued 95.096 billion euros in medium-to-long term debt this year, 110 percent of what it budgeted. Having given itself a head start this year, the debt management arm of the Economy Ministry plans to issue 207 billion euros to cover 2013’s needs, which include maturing debt of 159.153 billion euros.

The government of Prime Minister Mariano Rajoy is still weighing up the merits of whether to seek assistance from the European Stability Mechanism (ESM) in order to trigger bond purchases by the ECB.

The speaker of the Spanish lower house, Jesús Posada, said Tuesday that ECB President Mario Draghi would attend Congress in January or February to explain the bank’s Outright Monetary Transactions program to lower the borrowing costs of financially distressed euro-zone member countries.

Socialist congressional spokeswoman, Soraya Rodríguez, said the invitation to Draghi to speak in Congress was extended a month ago.

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