Thursday, August 21, 2014
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Spain holds successful bond sale

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Spain has held a successful bond sale after a week of speculation that it may need a bailout.

Thursday's auction helped the treasury raise 2.074bn euros in an auction of  two-, four- and 10-year bonds, comfortably beating its own target range of 1.0-2.0bn euros, Bank of Spain figures have shown.

But the funds came at a high cost, with the 10-year bonds fetching more than six per cent - a rate widely regarded as unsustainable for the state over the longer term.

Investors fear Spain will be forced to snatch an international lifeline because it cannot raise the huge sums required to rescue its bad loan-ridden financial sector.

Markets are wary of the unknown cost of bailing out the banks and pessimistic about the state's struggle to rein in public deficits at a time of recession and high unemployment - one in four Spaniards are currently unemployed.

Spanish officials insist however that the country will not have to follow Greece, Ireland and Portugal in asking for aid from the European Union and International Monetary Fund (IMF), which would put Madrid's finances under tight international scrutiny.

An IMF  report on Spanish banks to be released on Monday will price their capital needs at 40-80bn euros , Spanish newspaper ABC  said Thursday, citing a draft of the document.

The Spanish authorities have given themselves two weeks to take a decision  on how to recapitalise weakened banks.

In addition to the IMF report, officials are waiting for assessments by two private consulting firms, Roland Berger and Oliver Wyman, on the state of the banks' balance sheets.

Analysts have mooted a final bill for Madrid at somewhere between 60 and 200b euros, but the Spanish budget ministry said Tuesday that the figure would "not be very high".

A breakdown of the latest sale showed the rate on benchmark 10-year bonds climbed to an average 6.044 per cent from 5.743 per cent in the previous comparable auction held April 19.

But that was still short of the euro era record of 6.975 per cent struck  November 17, 2011.

For two-year bonds the rate shot to 4.335 per cent from 3.463 per cent at the  previous comparable auction on April 19 and for the four-year bonds it surged to 5.353 per cent from 4.319 on May 17.

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