Spanish Sovereign

Spain took full advantage of a secondary market rally to auction 10 year debt at its lowest yield since September 2010 on Thursday, despite an abundance of poor macroeconomic data.

Italy and Spain broke issuance records early this week, providing a solid start to a busy period of peripheral eurozone issuance despite a backdrop of worsening growth forecasts and the possibility of higher borrowing needs.

Small issuers felt the love of investors this week as a flurry of long dated issuance in the private markets echoed the bulge of activity in the public sector.

The Kingdom of Spain kept well ahead of last year’s funding pace — when it front-loaded its issuance with heavy supply in January — with an auction on Thursday that overshot its maximum target by €310m.

The Kingdom of Spain gave the strongest sign yet that the uncertainty surrounding a bailout for the Cypriot banking system has failed to impact the rest of the eurozone as the sovereign powered over its maximum target at an auction on Thursday.

The Kingdom of Spain shrugged off fears of contagion from the fallout over a rescue package for Cyprus with a record breaking bill auction on Tuesday. But a tougher trial for the eurozone periphery comes on Thursday when the sovereign attempts to sell longer dated debt.

Ireland’s €5bn 10 year syndication has proved something of a tour de force for the borrower. Over 400 investors placed orders totalling €13bn for the bond on Wednesday but interest in the deal was still rampant on Thursday allowing the bond to tighten further in secondary trading.

The Kingdom of Spain could be set to take its next step towards normal market access with a 15 year bond, bankers said, after the sovereign recorded strong demand at an unscheduled auction of long dated debt on Thursday.

The contrasting fortunes of the two largest peripheral eurozone sovereigns were sharply highlighted on Wednesday morning, as the Republic of Italy struggled to find demand at a debt sale while the Kingdom of Spain looked forward to an unscheduled auction of ultra long securities.

The Republic of Italy paid inflated yields on Tuesday at its first debt auction since being downgraded by Fitch Ratings last week, and could well have to cough up on Wednesday when it attempts to sell longer dated debt, said analysts.

Despite the speed at which the market bounced back from shambolic Italian elections last week, it is not back to full heath.

Spain’s five year and 10 year borrowing costs fell to their lowest levels since 2010 at an auction on Thursday morning, confirming that Italy’s political shenanigans are having little effect on the wider peripheral market.