Spanish Sovereign

The State of Brandenburg drew a well oversubscribed book for a no-grow €300m August 2036 bond on Tuesday, adding to a spurt of 20 year euro deals over the past two weeks.

European Central Bank president Mario Draghi has in effect told market participants to come back after summer if they want to see any further monetary stimulus — but belief that such stimulus is on the way helped a trio of euro deals this week.

Spain on Thursday sold three year debt at a negative yield for the first time, capitalising on a fall on yields over the last few weeks that many bankers attribute to investor expectations of central bank stimulus.

The immediate post-Brexit result landscape looked like a daunting one for eurozone periphery issuers. But just under a month later, one could argue they have never had it so good.

The lack of any concrete monetary easing announcements at a meeting of the European Central Bank’s governing council on Thursday could spark a rise in eurozone periphery sovereign yields, analysts have warned.

Spain drew nearly €30bn of orders for a new €6bn 10 year benchmark on Tuesday, as Cyprus tightened pricing by 20bp on a seven year deal.

Spain is lining up its second 10 year euro benchmark of the year, as bankers responded to a question about market conditions with: “It’s game on.”

Spain blew through its latest auction target with sales of debt at five, nine and 15 years, thanks to a drastically reduced cost of funds.

A stronger picture is emerging for the eurozone periphery late in the week, after the region’s governments suffered a spike in yields in the immediate aftermath of the UK’s vote to leave the European Union.

Spain’s 10 year bonds on Monday reversed all their Brexit driven losses, after the country’s voters showed a clear preference for pro-European Union parties at a general election on Sunday.

The UK may have knocked the eurozone periphery off a cliff as it stumbled on its way out of the European Union on Friday morning. Government bond spreads on Friday echoed those during the eurozone sovereign debt crisis. The gap between Germany and the periphery has opened up like the chasm that has developed between UK voters and the political establishment.

The first of three political risks to the stability of the capital markets faced passed without causing disruption this week, as a mechanism attributed with calming fears amid the eurozone sovereign debt crisis was declared legal.