Investors showed more appetite for Spain’s debt on Thursday, pushing borrowing costs up less than expected at its debut debt auction for 2011 and alleviating some concerns about the euro zone’s more vulnerable debtor nations.
Spain sold 3 billion euros of its 5-year bonds, at the top end of the Treasury’s target but down on the 3.4 billion euros sold at the previous auction on Nov. 4 which had a higher target. Bids of over 6 billion euros were taken.
The Treasury paid nearly a full percentage point more than last time to sell the debt, but that was way down on the 150 basis point premium priced in at the start of the week.
The euro EUR= rose 0.2 percent on the day to $1.3170 after the Spanish auction, recovering from an early slide to $1.3089, with traders also citing speculation that fresh measures to tame the euro zone debt crisis may be in the works.[ID:nLDE70B0BE]
Fellow struggler Portugal also saw healthy demand for its first debt auctions of the year on Wednesday, helping to tone down speculation that the crisis which has already forced Greece and Ireland to take bailouts would also engulf not only Portugal but also Spain.
“The market is seeking a turning point in the peripheral crisis,” said Peter Chatwell, rates strategist at Credit Agricole in London.
Even so, Spain paid a yield of 4.542 percent, a big jump up from 3.576 percent at the last auction.
“For the near term I expect we will see some decrease in the pressure on euro zone periphery debt. But it’s one thing to say we are seeing good demand at auctions … countries are (still) paying substantially more than in previous months,” said Luca Cazzulani, deputy head of fixed income at UniCredit.
The bid-to-cover ratio was 2.1, up on the 1.6 level at the Nov. 4 auction.
On Thursday the key risk premium on Spanish debt as measured by the yield on ten-year government bonds versus German bunds was around 238 basis points, some way down on a 6-week high close to 300 bps hit last week. ES10YT=TWEB DE10YT=TWEB. Spanish bank shares jumped on Wednesday and Thursday on expectations of a good result at the auction. The banks are heavily exposed to sovereign debt and some had trouble earlier this year accessing the European interbank market due to concerns over the high government deficit.
Leading bank Santander (SAN.MC) shares were up 4.61 percent on Thursday at 1000 GMT, after soaring a day earlier.
Image by Catholic Westminster via Flickr
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