Spanish bond sale reaps rich rewards

Spanish bond sale reaps rich rewards
Spain's economic ministry is upbeat about the result of Thursday's bond sale.
Spain's economy received a much-needed shot in the arm on Thursday with the government raking in €5.03 billion ($6.6 billion) via the sale of medium- and long-term bonds at lower interest rates than expected.

In what is the latest sign of improved investor sentiment regarding the country's ability to manage its finances, the Treasury managed to offload €2.435 billion worth of 10-year bonds at an average yield of 4.957 percent, down from 5.222 percent at the last similar auction on February 21.

It was the first time that the yield on Spanish 10-year bonds have fallen below five percent since November 2010, the economy ministry noted in a statement.

Spain's borrowing costs have fallen since the European Central Bank announced back in September it was ready to buy an unlimited sum of bonds to curb borrowing costs for troubled member states that accept strict conditions.

The risk premium — the extra rate demanded by investors in Spanish 10-year bonds over the rate offered by equivalent German bonds — stood at 348 basis points, down from 355 basis points when markers closed on Wednesday.

Investor confidence in eurozone nations declined after a general election in Italy last month ended in political deadlock, with the majority of voters backing anti-austerity platforms of former prime minister Silvio Berlusconi and comedian Beppe Grillo.

But an agreement reached by European finance ministers on Tuesday to give Ireland and Portugal more time to repay emergency bailout loans has improved sentiment for all heavily indebted nations that use the euro, including Spain.

The Treasury sold €2.026 billion in five-year bonds at an average yield of 3.612 percent, down from 4.169 percent during the last comparable auction on February 7th.

It also raised €568.9 million in three-year bonds at an average yield of 2.68 percent, down from 2.77 percent on January 17th.

The Treasury had expected to raise € 4.0–5.0 billion via the bond auctions, but demand ended up outstripping supply by 2.6 to one.

The Treasury has already taken in €35.5 billion, or 29.3 percent of the total amount it has planned to raise through medium and long-term bond auctions this year, the economy ministry statement said.

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