Spain's Treasury launched a 15-year syndicated bond on Tuesday, seeking to take advantage of a relatively benign market view on its debt, but had to offer a significant yield pick up to lure investors.
A source told Reuters the Treasury hoped to place between 3 bln and 5 bln euros of the bond via a syndicate of banks led by Caja Madrid, Citi, Credit Agricole CIB, Deutsche Bank, HSBC and Santander.
Orders for the bond, the Treasury's second syndicated issue this year, totalled over 5 bln euros at 1040 GMT, according to Reuters service IFR.
Price guidance was 13-15 basis points over Spain's 4.65% July 2025 government bond, or 216-218 basis points over mid-swaps, IFR said.
The 2025 4.65% bond was yielding around 5.84% on the secondary market compared with a yield of 7.5% for Portuguese debt of the same maturity — a level few analysts believe Lisbon can sustain for long.
Using a syndicate of banks to sell debt can help countries access a wider investor base and secure a larger issue size or lower pricing, and ensure secondary market liquidity.
The Spanish deal comes a day before Portgual, whose sovereign yields hit a euro-era high on Monday, is due to return to the market with an auction of short-dated bonds.
Debt from the euro zone's most heavily indebted states remains firmly in the market's sights, though Spain has managed to differentiate itself from Portugal, seen as next in line for a possible international bailout.
Nevertheless one anlayst said she was surprised by the bond sale's timing, even if the issue looked to be going well.
"In my view it's not the best timing, with periphery stresses still high and a 15-year issue due from Italy on Friday. It will be expensive for Spain to issue, but looks good for investors," said Chiara Cremonesi, strategist at UniCredit.
Yields rose on debt issued by the euro zone's lower-rated sovereigns after Spain launched its bond, adding to supply pressure in peripheral markets ahead of the Portuguese sale. The yield spread between German bunds and Spanish bonos widened by 6 basis points to 216 bps.
"This (pricing) gives you an idea that the concession has to be quite heavy to give investors an incentive to buy the bond, so the primary market is putting pressure on the secondary," said Michael Leister, strategist at WestLB in Dusseldorf.
He said Portugal was expected to offer "quite a decent concession" to outstanding debt at its Wednesday auction.
EU leaders meet later this week to find some common solution to ending the euro zone debt crisis, with peripheral debt likely to bear the brunt of any failure to agree a deal.
SPAIN ISSUANCE FATIGUE
Prior to Tuesday's debt sale, Spain had raised 16.3 bln euros via the bond market in 2011, against a gross borrowing requirement for the year of 93.8 bln euros.
"I think there is almost a supply fatigue setting in for Spain and they're potentially pushing their luck a bit," said Jo Tomkins, analyst at consultancy 4Cast, adding that Spain's aim may have been to issue the bond before the EU meeting this week.
Madrid's financing costs have been manageable so far but analysts have concerns over debt redemption hurdles the country faces, the first of which is for 15.5 bln euros in April.
The Spanish Treasury insists its debt redemption dates coincide with months when the tax take is greater and so it will have little problem meeting its obligations.
