Treasury sells five-year bonds at record low yield

The Spanish Treasury sailed through the first debt auction of the year with the yield on five-year bonds sold in the tender falling to the lowest level since the euro zone was established in 1999.

The debt-management arm of the Economy Ministry sold 5.287 billion euros in five- and 15-year bonds, above its target range of 4-5 billion. It sold 3.527 billion euros in five-year bonds, with the average yield falling to a euro-era record low of 2.382 percent. Demand for this tranche was 1.8 times the amount sold.

The Treasury issued a further 1.760 billion euros in bonds maturing on October 31, 2018 at an average rate of 4.192 percent, down from 4.809 percent in at the previous auction. The bid-to-cover ratio was 2.7 times.

The fall in borrowing costs in the auction reflects a much improved scenario in the secondary market, where the yield on the benchmark 10-year government bond was, at one point, trading below 3.7 percent for the first time since 2006. During the height of the euro crisis in the summer of 2012, the yield shot to well over 7 percent. As a result, the risk premium has dropped well below 200 basis points, its lowest level since April 2011.

The Treasury’s gross issuance target for this year is 242.370 billion euros.