Spain’s debt picture brightens as bill yields hit new low

Spain’s improving public finances mean it will issue less net debt than expected this year, its economy minister said today, as the country auctioned three-month bills at record low yields below zero.

Helped by favourable market conditions driven by a run of debt redemptions in the euro zone and a lessening of tensions over Greece, the treasury sold €4.2 billion three- and nine-month paper.

The marginal yield on the shorter paper dipped to -0.05 per cent, below the -0.025 per cent registered in equivalent sales in April and May.

Demand was high, with a bid-to-cover rate of 7.1.

Spain is one of the countries seen as most vulnerable to any contagion from Greece. Anti-austerity movements in the mould of Greece's ruling Syriza are gaining support ahead of a general election expected to take place this year.

But bond yields headed lower across the euro zone today in a cash-rich market, a day after Greek banks reopened as the government began paying off billions of euro owed to international creditors.

Sentiment towards Spain has also been lifted by strength in the economy, which the International Monetary Fund expects to grow 3.1 per cent this year, the fastest in the euro zone.

That improves the government’s chances of cutting the public deficit to its target of 4.2 per cent of GDP this year.

The narrowing gap will allow the government to trim net debt issuance to €53 billion, economy minister Luis de Guindos said today.

The government set issuance at €55 billion in December.

The positive market backdrop ahead of August holidays is also encouraging Spanish companies to return to the debt market.

Telecom infrastructure firm Cellnex issued a €600 million, seven-year bond on Monday, while major bank Banco Popular said it would issue a 5¼-year bond today. – (Reuters)