Strong Demand for Spanish Bonds at Today’s Auction

Spain’s bond auction went better than expected earlier today, with strong demand from the market. Spain sold 2.54 billion euros of bonds, just above the target for this auction

Demand for the 10-year bonds was 2.42 times the amount sold, compared with 2.17 at the January auction.

The 10-year bonds were sold today at a yield of 5.74 percent, up from 5.403 percent in February. The rate for 2-year bonds dropped to 3.46 percent from 3.495 percent in October.

Earlier this week, there had been worries about this week’s bond auction after the interest rates on the existing 10-year bonds rose above 6 percent, since borrowing costs above 6 percent are considered to be “unaffordable” in the long run.

The consensus is that the strong demand for bonds is partially driven by the ECB’s LTRO programme, when the ECB lent more than 1 trillion euros to banks. According to the Treasury data, Spanish bank holdings of local debt increased to 220 billion euros in January from 178 billion euros in November, while foreign investors’ holding dropped.

Analysts said that Spain had passed the hurdle of this auction, but that the challenges for the economy remain. Until there are some visible signs that the government is implementing its austerity measures and fiscal consolidation programme, investors remain being worried about the country’s budget deficit and sustainability of the economy in the medium-term.

Source: BBC

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Kenny Fisher

Kenny Fisher

Currency Analyst at Market Pulse
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.