Spain Sells $6 Billion Debt, Placing Longest Bond Since 2011
Comment of the Day

November 08 2012

Commentary by Eoin Treacy

Spain Sells $6 Billion Debt, Placing Longest Bond Since 2011

This article by Emma Ross-Thomas for Bloomberg may be of the interest to subscribers. Here is a section:
Spain sold 4.76 billion euros ($6.06 billion) of debt, including the longest-maturity security it has auctioned in more than a year, even as weak demand prompted a slump in prices after the sale.

The Treasury in Madrid beat its maximum target of 4.5 billion euros. Still, demand for a new five-year benchmark was 1.57 times the amount sold, compared with 2.55 when similar debt was sold last month, and the yield rose to 4.81 percent after the auction from an average 4.68 percent at the sale.

Prime Minister Mariano Rajoy is keeping investors guessing as to whether he will seek a European bailout that would allow the ECB to start buying Spanish bonds. Central bank policy makers meet in Frankfurt today as Rajoy presses the ECB to go beyond the rules it has set for itself and say how much it would intervene to cut borrowing costs if he did ask for help. “We're in something of a stalemate, which is fine for now, but going into 2013 with the new supply, there's a risk the market forces Spain into a bailout,” Harvinder Sian, a senior fixed income strategist at Royal Bank of Scotland in London.

Eoin Treacy's view Europe's debt crisis has been off the radar for the last few weeks as leadership changes in the USA and China have taken centre stage. The central question with regard to Spain will be how to avoid calling whatever assistance it receives something other than a bailout. Easier credit conditions, access to additional funds via the discount window and the ECB promising to buy its debt could already be construed as a bailout. What remains to be seen is whether Spain will need another bailout.

Spain's 10-year spread over Bunds has fallen from 600 to 400 basis points since July. The 400 basis point level represents an area of support and a sustained move below it would be required to suggest improving perceptions of Spain's credit worthiness.

The IBEX Index rallied impressively between late July and late September and has been ranging mostly above the 200-day MA since. It is currently testing the trend mean and a clear upward dynamic will be required to question current scope for a further test of underlying trading.

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