Huge demand for record Spanish €10 billion bond sale

Demand for yesterday’s debt pushes yield on Spanish 10-year bonds below 3.7%

Spain issued a record €10 billion in debt yesterday as the country capitalised on the recent drop in its borrowing costs and the stabilisation of its economic outlook.

It was the biggest 10-year bond sale Spain has ever made and the €40 billion demand was the highest an EU government has seen. It more than doubled the €22 billion demand for a record-breaking issuance made exactly a year earlier when Spain placed €7 billion on the market.

The sale was syndicated, with the government hiring a group of banks to offer the debt to investors.

Syndicated issuances tend to be larger and less frequent than treasury-supervised sales, and on this occasion the banks charged with placing the debt were Barclays, BBVA, Citigroup, Goldman Sachs, Santander and Societe Generale.


Yesterday’s bonds, which mature in April 2024, will be Spain’s new 10-year benchmark, replacing that which matures in October 2023.

“The markets are putting their confidence back in Spain. It’s stopped being a country that finds it difficult to finance itself,” said Lluis Torrens, head of the public-private sector research centre at Spain’s IESE business school.

The massive demand for yesterday’s debt pushed the yield on Spanish 10-year bonds below 3.7 per cent, levels they were at in 2006 before the economic crisis hit. The benchmark yield premium compared with German debt has dropped from a high in the summer of 2012 of over 600 basis points to below 200 points.

Speculation that Spain would require a full sovereign EU bailout subsided last year as the economy stabilised. By the end of the year the country had climbed out of a two-year recession. On Tuesday the IMF tripled its growth forecast for Spain this year from 0.2 per cent to 0.6 per cent.

“The macroeconomic conditions, without being cause for celebration, are better now and the fiscal sustainability of countries like Spain is less in question,” said Santiago Carbó of the FUNCAS think tank.

Austerity policies and greater fiscal consolidation have played key parts in this development, he added.

The positive response to the new Spanish debt yesterday rubbed off on other markets, with Portugal and Italy seeing the yield on their 10-year obligations dropping.

However, Spanish unemployment is still over 25 per cent and its overall debt continues to rise. At 93.4 per cent of GDP, the country passed the euro zone debt average for the first time in the third quarter of 2013, Eurostat said yesterday.

This month the Spanish government unveiled plans to increase its total public debt issuance in 2014 to €242.4 billion, a rise of €6.0 billion on 2013. That total includes existing obligations that have been rolled over, and the new debt issued will be worth only €65.0 billion, down from €71.9 billion in 2013.

Guy Hedgecoe

Guy Hedgecoe

Guy Hedgecoe is a contributor to The Irish Times based in Spain