Tuesday, September 18 12:25:01
Spain easily sold 4.6 billion euros of short-term debt today but uncertainty over whether the country will apply for an aid programme and trigger a European Central Bank bond-buying programme kept yields at a high level.
The Spanish Treasury, taking advantage of improved market conditions after the ECB said it would help reduce the country's financing costs, sold more than the top end of its target of between 3.5 billion and 4.5 billion euros.
Although it was the highest amount sold at a T-bill auction since March and yields were slightly lower than a month earlier, the demand for the 12- and 18-month T-bills was mixed. Spain's Deputy Prime Minister Soraya Saenz de Santamaria said on Tuesday the government was still considering the terms of a bailout, a condition of ECB help, though investors' patience is wearing thin and last week's rally is fading.
The premium traders demand to hold Spanish over German debt fell to five month lows after the ECB announced the bond-buying programme on Sept. 6, but Prime Minister Mariano Rajoy has not made clear his position on aid, fuelling a renewed sell off.
The country's benchmark 10-year bond rose to around 6.03 percent before the auction from 5.65 percent just 10 days ago.
Spain is at the epicentre of the euro zone debt crisis, now in its third year, with investors concerned that Madrid is unable to deflate its massive public deficit and control its soaring debt levels. ECB Governing Council member Luc Coene warned Rajoy against delaying triggering the programme on Monday, saying it would not take long for yields to rise if he did.
A widening fiscal gap and mounting pressure from the business community and credit ratings agencies leave Spain with little or no choice but to request European aid, analysts and sources say. "I think we're in a bit of political limbo where markets are just waiting for Spain to ask for help, because ultimately if Spain doesn't ask, the verbal boost from the ECB is going to fade away," analyst at consultancy 4Cast Jo Tomkins said.
"The longer Spain holds out, the more impatient markets are going to get and the more frustrated markets are going to get."
Average yields fell to 2.835 percent on the 12-month bill from 3.070 percent in August, with 3.6 billion euros of the paper sold. The bid-to-cover ratio was 2 after 1.9 last month. The Treasury sold 1 billion euros of the 18-month bill, which was 3.6 times subscribed compared to 4 times in August, at an average yield of 3.072 percent. The same paper sold at a yield of 3.335 percent a month. (C ) Reuters