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Spanish yields surge at short-term bond auction

Date: Thursday 17 May 2012

Spanish yields surge at short-term bond auction

Spain's Treasury saw bond yields at a debt auction rise sharply on Thursday, as it issued three- and four-year bonds for a total of 2.49bn euros, the top-end of its 1.5-2.5bn-euro target.

Demand was strong but, unsurprisingly, the country’s financing costs have risen as a result of increased tension in the peripheral European sovereign debt markets.

The Treasury issued €372m in debt with maturity on January 2015. The bid-to-cover ratio (a measure of demand) was 4.5 compared to 2.4 in the prior auction, but the average yield jumped from 2.89% to 4.375%.

Some €1.024bn was also issued in notes maturing on July 2015. The bid-to-cover ratio increased from 2.9 to 3, while yields rose to 4.876% compared to the prior 4.037%.

The Treasury also sold €1.098bn in debt maturing in April 2016, with a yield of 5.106% compared to the prior 3.374%. However, the bid-to-cover ratio in this particular auction fell to 2.4 from the previous 4.1.

“Investors are finding it very difficult to justify taking on the additional risk associated with the Eurozone. A key test of sentiment was to be seen in a Spanish bond auction of three- and four-year bonds,” said Alpari analyst Craig Erlam.

“How long Spain can continue to pay such high interest is yet to be seen. Spanish 10-year bond yields are up six basis points on the day and trading well above 6% still,” he said.

SC

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