Spain reaps rich rewards in bond auction

Spain raised €4.714 billion ($6.189 billion) via the sale of medium- and long-term bonds on Thursday at lower interest rates, a sign of improved investor sentiment regarding the country's ability to manage its finances.

The Treasury sold €1.29 billion worth of 10-year bonds at an average yield of 4.612 percent, down from 4.898 percent at the last similar auction on March 21.

It was the lowest yield on Spanish 10-year bonds since September 2010 when the rate hit 4.144 percent.

The Treasury sold €2.043 billion in five-year bonds at an average yield of 3.257 percent, down from 3.557 percent during the last comparable auction on March 21.

It also raised €1.381 billion in three-year bonds at an average yield of 2.792 percent, down from 3.019 percent on April 4.

The Treasury had expected to raise €3.5–4.5 billion via the bond auctions.

Spain's borrowing costs have fallen since the European Central Bank announced in September its readiness to buy an unlimited amount of bonds from 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 Bunds — stood at 344 basis points, down from 345 basis points when markets closed on Wednesday.

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Spanish bond yields hit record low

The yield on Spanish, Italian and German 10-year government bonds fell to new record lows on Tuesday, the day after the ECB began a massive bond-buying programme to ward off deflation in the eurozone.

Spanish bond yields hit record low
The European Central Bank, in Frankfurt, launced a new quantitative easing programme on Monday. Photo: Daniel Roland/AFP.

The rate of return to investors on 10-year Spanish government bonds fell to 1.231 percent from 1.275 percent on Monday. 

The yield on 10-year Italian government bonds fell to 1.220 percent from 1.280 percent and those of Germany fell to 0.279 percent from 0.312. 

The European Central Bank launched on Monday a so-called quantitative easing (QE) programme that will see it buy €60 billion of eurozone government and corporate bonds through next September.

The ECB hopes that by buying bonds off investors they will invest the money elsewhere, thus boosting growth and preventing a dangerous cycle of falling prices from setting in.

Eurozone bond yields have been falling in recent weeks to record lows as investors anticipated the increased demand from ECB purchases.

The yield on French 10-year bonds was at 0.568 percent in morning trading, above the record low of 0.521 percent set in January.

Greek bonds are not benefitting from the decline in yields due to a new spike in concerns over its finances as well as Greek debt not being included in the QE programme.