jueves, 13 de enero de 2011

Spain Conducts Successful Bond Auction

MADRID — Spain and Italy followed Portugal with strong bond auctions on Thursday, easing immediate concerns about the ability of the euro zone’s weakest members to raise funds to meet their debts.

Spain sold €3 billion, or $3.9 billion, of five-year bonds at a yield of 4.54 percent. That was 97 basis points more than the previous auction in November, but market expectations had been for a 130 point jump, according to Reuters. The auction was 2.1 times oversubscribed, compared to 1.6 times last time.

Italy, which has been more sheltered from market pressure than its southern partners, easily sold €6 billion of medium- and long-term bonds, although it also saw yields creep up.

Chiara Cremonesi, fixed-income strategist at UniCredit, said the Spanish auction “went well.” Although the yield was significantly higher than in November, she noted that it still represented a decline of 8 basis points compared with the market level ahead of the auction.

A good performance by Madrid had been anticipated following Wednesday’s Portuguese auction, which led the government in Lisbon to reaffirm its stance against accepting a bailout.

However, analysts cautioned that they could prove to be merely a temporary reprieve, in particular for Portugal.

Lisbon was forced to sell its 10-year bonds at 6.7 percent — a cost that many analysts consider unsustainable in a country that is forecast by the Bank of Portugal to sink back into recession this year. Last year, both Greece and Ireland were forced to apply for rescue financing within a month of breaching the 7 percent level, a level that Portugal also briefly surpassed earlier this month.

In the case of Spain, meanwhile, many analysts are focusing their concerns on the commercial banking debt rather than the sovereign debt. Like many of their counterparts elsewhere, Spanish banks have been shut out of the markets. In addition, they face significant exposure to a collapsed property market.

Underlining the banking sector’s difficulties, one of Spain’s leading institutions, Banesto, reported Thursday that its net profit fell 18 percent to €460 million last year, as it had to put aside €1 billion in additional in provisions against bad loans.

Still, the Spanish stock market continued to rally Thursday, with the main stock index adding 2 percent on news of the successful bond sale, after surging more than 5 percent Wednesday, its biggest one-day gain since Greece’s rescue last spring.

The Euro Stoxx 50 index, a barometer of euro-zone blue chips, was up almost 1 percent at midday.

To cover its financing needs, the Spanish treasury is planning €47 billion of net debt issuance for this year. Following Thursday’s auction, another three sales of bills and long-term bonds are scheduled before the end of this month.

The Spanish authorities did not provide an immediate breakdown of demand for its bond sale. On Wednesday, Fernando Teixeira dos Santos, the Portuguese finance minister, said 80 percent of the Portuguese auction was bought by foreigners, adding that this would allow the government to continue to “diversify our investor base.” Such a comment, as well as pledges earlier this month by Beijing and Tokyo to buy more euro debt, have led analysts to believe that Asian demand has underpinned the latest bond sales.

The bond auctions have coincided with news that European officials are pushing for a rapid expansion of the size of the region’s rescue fund, saying it would provide a longer-term solution.

José Manuel Barroso, president of the European Commission, is pushing European leaders for a decision at their Feb. 4 summit meeting.

The Italian Treasury auctioned €3 billion of five-year bonds at an average yield of 3.67 percent, up from the 3.24 percent at which it last sold similar securities in November. The bid-to-cover ratio was unchanged at 1.4 times. It also sold €3 billion of 15-year bonds at an average yield of 5.06 percent, up from 4.81 percent in November, and at a bid-to-cover ratio of 1.4, better than November’s 1.3.

Italy’s bond yields have been chugging steadily upward since October, as fears about the euro zone have spread.

Ben May, an economist with Capital Economics in London, estimates the government needs to raise as much as €330 billion this year. But he said there are a number of reasons to believe that Italy will come out of the current crisis relatively unscathed, including the fact that its budget deficit is — at about 5 percent of gross domestic product — relatively low in comparison to many of its peers.

“It’s a little unfair to put them into the same category as Greece, Ireland and Portugal, and also Spain, to a certain extent,” he said. “They didn’t have the big lending binge the way some of these other countries did, for one thing. And while Greece and Ireland are still in recession, Italy is expanding, albeit at a slow pace.”

The danger, Mr. May said, is that Italy’s debt is very large, and with economic growth expected to remain weak over the next decade, a failure to keep the national debt in check would likely weigh on confidence.

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