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Pushing maturities is the next stage of peripheral recovery

Spain showed the rewards of being creative with its longest ever bond of the euro era on Monday, chopping €1bn from its funding needs with a deal that will mature when the eurozone debt crisis is a matter for history books, not newspapers. With more dovish measures possibly on the horizon at this week’s European Central Bank meeting, issuers could soon find that such deals are the best way to add some duration to their debt profiles.

It’s hard to see anything not to like about Spain’s €1bn October 2064, from either an issuer or investor perspective. The deal diversified the sovereign’s investor base, lengthened its maturity profile, took a chunk out of its funding needs and — at least according to the issuer — was competitively priced.

Portugal certainly seemed to be aware this week that the chance to offer a tasty 4% coupon that will catch the eye of yield hungry long end investors is dwindling. It mandated banks for a long expected February 2030 on Tuesday, but its choice to come sooner rather than later may well have been driven by a desire to print before the ECB meets on Thursday.

With many analysts predicting more dovish words from ECB president Mario Draghi — whether in the form of rate cuts, quantitative easing or some other monetary magic — periphery spreads could be about to get even tighter, following the searing compression they have already seen this year.

Such a shift could have left Portugal unable to offer a 4% coupon if it came next week, potentially putting off many investors.

Even though periphery sovereigns are well advanced on their funding for this year, they still have plenty to do. Extending average debt maturities, ravaged during the height of the eurozone debt crisis in 2011 and 2012, should be a big part of their plans.

That will mean that opportunistic, ultra long dated private placements like Spain’s deal on Monday will become ever more important.

The same front loading approach to their funding that has left the sovereigns well ahead of their schedules also means that they can afford to be creative, taking market opportunities when they come, and combining private and public funding.

The periphery has proven that it has full market access. It is time to reap the benefits.

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