Spain has held some impressive auctions this year amid a spectacular rally in the secondary market for eurozone peripheral sovereign bonds. But with Ireland and Portugal — the standout performers — already with blowout syndications in the bag and signs that the rally is petering out, it is clear that Spain has to act fast to get the maximum return from these luscious conditions.
With a €133.3bn gross funding target, Spain has to raise €12bn more in medium to long term funding than last year — a total which was already a euro-era high. It is also keen to lengthen the average life of its outstanding debt, which has steadily declined since 2010 to 6.2 years at the end of last year.
It’s peripheral peer Italy is in a more relaxed situation. It tends to wait until later in January to start and besides, has had a towering funding pile for as long as anyone can remember so is pretty well versed in all of this.
Of course, it’s unfair to say that Spain hasn’t already made a start this year. It sold €1.442bn of October 2028 paper and €1.811bn of July 2026 debt at auction last week — both at yields well below where it would have been able to print even at the end of last year. It was the second time Spain had tapped the October 2028s this year having reopened the bond for €1.76bn a week earlier.
So why is Spain waiting so long to syndicate a new deal? It would have a clear run this week, with no other peripheral sovereigns slated for auctions. Next week will be busy again, with Italy selling medium to long term debt on January 30.
The pipeline is only going to become busier as we move further into 2014, with both Ireland and Portugal planning to restart regular bond auctions in the first half of the year.
But the big worry for Spain is that it could have left things too late to enjoy the real fruits of the peripheral spring.
After its spreads to Bunds screamed tighter from the start of the year — impressively, those spreads kept tightening even after Spain announced its increased funding target — its 10 year yields reached a low last seen in 2006 on Monday.
But that may well be as good as it gets, at least in the near term. Spain — and Italy — was outperformed by Ireland and Portugal on Tuesday. The market may well be catching its breath. With Spanish yields sitting at pre-crisis levels, there is little more upside for investors to gain by piling into the secondary Bonos market.
There is still time for Spain to benefit from this remarkable rally. But every day that it waits, the reward becomes a little less impressive.
