Spain’s risk premium on Tuesday fell below 300 basis points for the first time since February 2012, while the Treasury managed to sell three-month bills at the lowest yield on record as market conditions improved considerably.
One of the detonators of the improvement seems to be a shift in attitude on the part of the European Commission away from its obsession with austerity. EC President José Manuel Barroso on Monday said: "While I think this [austerity] policy is fundamentally right, I think it has reached its limits."
With the euro zone in recession, expectations have also been building for a rate cut by the European Central Bank (ECB) at next week’s monetary policy meeting.
Expectations that the European Commission will give Spain two more years to bring its deficit back within the EU ceiling of three percent of GDP have also boosted sentiment toward the country.
In late afternoon trade, the yield on the Spanish benchmark 10-year government bond was at 4.247 percent, the first time it has dropped below 4.3 percent since November 2010. That helped push the risk premium to just below 300 basis points. Improved sentiment was also reflected in the stock markets. The Spanish blue-chip Ibex 35 index was up 2.8 percent by late afternoon.
The debt-management arm of the Economy Ministry sold 855 million euros in three-month bills at a cut-off rate of 0.150 percent, well down on the 0.340 percent offered at the previous tender of debt with the same maturity held on March 19. Tuesday’s sale saw the lowest rate paid for three-month bills since they were first issued in 1991. Demand amounted to 3.212 billion euros.
The Treasury placed a further 2.156 billion euros in nine-month bills at a marginal rate of 0.825 percent, down from 1.060 percent in March. The bid-to-cover ratio was 2.37 times the amount sold. The total sold in the two tranches of the auction was 3.01 billion, slightly above the target of three billion.
“The estimated maximum amount was placed at reduced rates and the bid-to-cover ratios were very good, with all of this confirming the change in perception of Spain,” Reuters quoted Cortal Consors’ director of strategy, Estefanía Ponte, as saying.