Spain saw strong demand for its bonds today but had to draw in investors with high levels of interest that may prove unsustainable over time, highlighting ongoing concerns about peripheral euro zone debt.
Spain sold €1.50 billion of a 2014 bond, and €1.50 billion of a 2016 bond today, which together were at the top end of the Treasury's €2-3 billion target range. Bids of close to €8 billion were received.
But the market demanded a high premium for the debt after ratings agency Moody's cut Portuguese debt to junk status on Tuesday, while doubts still abound over the EU's ability to solve the debt crisis and for countries to meet fiscal targets.
"It is a vote of confidence even if everyone is talking about domestic support here. The underlying concerns continue to bubble away and Spain remains very much in the firing line," said Jo Tomkins, analyst at consultancy 4Cast.
She said that once a solution was found to Greece's second bailout package attention would then turn to Portugal and Ireland, and Spain could get caught up too.
Spreads on bonds from the euro zone's most indebted states against Bunds were unchanged after the results.
The average yield on the 2014 bond was 4.291 per cent. It was last auctioned as a five-year bond in January 2010.
The average yield on the 2016 bond was 4.871 per cent, up on the 4.549 per cent the last time it was sold on May 5th.
Separately, France sold €8.4 billion of three long-dated bonds, which analysts said were well received, and continued to reflect a marked distinction between debt from countries at the 'core' of the euro zone compared with the periphery.
The Spanish bonds were well bid, with the bid-to-cover ratio on the 2014 bond at 2.3. The 2016 was 2.9 times subscribed, compared with 1.9 times in May.
Despite that analysts said Spain could only afford to go on paying these prices for so long.
"Obviously the yields are that much higher than last time and in the long run, with the amount of debt Spain has to sell, this creeping cost of issuance is not a good thing," said Marc Ostwald, strategist at Monument Securities.
The Treasury had issued €49.2 billion, or 52.4 per cent of its planned medium and long-term debt issuance before the auction.
Reuters
