Spanish bond sale a relative success–yields climb but the country meets its target amount for the auction
I think you have to count Spain’s bond auction this morning as a success—especially relative to all the bad news in the last few days out of the Banco de Espana about the Spanish banking system.
In Paris an auction of French debt didn’t go quite so well—considering the relative level of worry about Spain and France.
Borrowing costs did continue to rise with the yield on the benchmark Spanish 10-year bond climbing to 5.743% from 5.403% at the last auction in January. But Spain sold 2.54 billion of 2- and 10-year debt. That was slightly above the 2.50 billion euro maximum target set for the sale and the bid-to-cover ratio, the ratio of bids from buyers to the amount of debt on offer, increased to 2.42 from 2.17 in January.
The auction of the 10-year bonds had been seen as a key test of attitudes toward Spanish finances since the maturity of the bond stretches beyond the date when Spanish and other European banks will have to pay back the 3-year loans they took out in December and February from the European Central Bank.
In Paris French President Nicolas Sarkozy breathed a sigh of relief this morning at the results of a French bond auction. The government sold 7.97 billion euros in 2- , 3- , and 5-year bonds, meeting its target for the sale. The last thing Sarkozy needs in the days before the French first-round vote on Sunday, April 22, is turmoil in the debt market.
But yields on French debt continued to climb. The yield on the 5-year notes, for example, rose to 1.83% from 1.78% on March 15.
France has its own debt problems: The International Monetary Fund projected this week that France would fail to reach its target of reducing its budget deficit to 3% of GDP in 2013, saying that 3.9% was more likely.
But the big worry about France is that the country is the second largest contributor to EuroZone rescue funds. If France gets in enough trouble to put its own credit rating at further risk of a downgrade that would ripple out across the EuroZone and roil the already uncertain waters floating the European Stability Mechanism due to go into operation in July.
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