Spanish Sovereign

Spain raised an impressive €5bn of three to 20 year money on Thursday to all but complete its borrowing requirement for the year, in what had been tipped as a potentially tricky auction. Despite the size achieved the auction was not a resounding success and the bonds sold off post auction.

Spain’s plans to meet its long term redemptions with short dated debt in 2013 has drawn comparisons with the Portugal’s funding strategy before its bailout in 2011.

The received wisdom in the SSA world is that pulled deals — like Madrid’s abortive attempt to come to the market this week — cause lingering investor distrust and make it hard for borrowers to return to markets when next they need to. But Madrid’s circumstances were as much to blame for this week’s mishap and SSA issuers should still see this autumn as a chance to drive down costs of funding.

Comunidad de Madrid will focus on privately placed deals during the rest of the year after having its fingers burned during an attempted syndicated tap on Tuesday, dealers close to the aborted deal have told SSA Markets.

Instituto de Credito Oficial (Ico) is set to price a five year euro benchmark on Monday afternoon, capitalising on last week’s rally in peripheral European sovereign debt. The deal will be a test of demand for the agency, as it will demonstrate the extent to which improved sentiment around Spain will filter down to its agencies.

Peripheral eurozone sovereigns raised nearly €30bn this week across a range of maturities amid a surge in demand based on pepped up hopes of a Spanish bail-out.

The timing of any Spanish bail-out was clouded further on Thursday as news surfaced that the eurozone was considering helping the country by providing insurance to investors who buy its government bonds. Meanwhile, a Bonos auction showed that investor confidence in either the Spanish economy or the likelihood of an ECB backstop bid was growing.

Yields on Spanish debt dropped slightly Monday morning in response to the results of Oliver Wyman’s audit of Spanish banks’ capital shortfalls on Friday night. The audit showed Spanish banks have extra capital needs of €59.3bn — a level in line with expectations.

Spanish bond yields on Friday held onto gains sparked by Thursday's budget announcement but faced volatile trading conditions. Investors remain nervous about an impending rating action from Moody’s, the upcoming results of an audit of Spanish banks and the possibility that Prime Minister Mariano Rajoy will drag his feet over applying for a bailout.

The Kingdom of Spain’s short term borrowing costs are on an upward march again and could shoot even higher unless the government accepts a bailout package from the EU, analysts have warned.

Issuers should take the plunge. Those considering whether or not it is wise to pre-fund should bite the bullet and go for it.

Spain exceeded its fund raising target in an auction of three and 10 year debt on Thursday, a week before Moody’s is expected to deliver its verdict on the sovereign’s rating and amid intense speculation that Spain will soon ask the ECB to begin buying its bonds.