Spanish Sovereign

Instituto de Crédito Official is angling for a public issue this month as peripheral eurozone spreads scream in following the unveiling of the ECB’s latest bond market bazooka on Thursday.

Instituto de Crédito Official (Ico) answered critics of its public debt return by attracting domestic demand for a €100m tap and revealed further private deals aimed at domestic and international investors could soon follow.

Just as we enter one of the busiest months of the new issuance calendar in some of the most volatile markets in history, Moody’s could be about to junk Spain. Ratings agencies have often been followers rather than drivers of the action during this sovereign crisis. But this time round, a ratings cut could push a Spanish bailout from being a likelihood to a certainty.

The Spanish regions of Valenica and Murcia have requested a bigger bailout from Spain’s central government than expected. Spain’s problems are only escalating as Moody’s is expected to downgrade the sovereign to junk status which could further push the country’s borrowing costs.

Italy raised over €7bn of long-dated debt on Thursday, its first attempt at accessing duration funding since a strong rally over the summer. But a sell-off in peripheral bonds darkened the mood and doesn’t bode well for Spain’s auction next week.

Catalonia, the Spanish region worth 20% of the country’s economy, asked the central government on Tuesday for financial aid. A bail-out will strain Spain’s coffers further and is likely to deter more investors from wanting to buy its debt, bringing Spain closer to the prospect of an EU bail-out.

Spain slashed its borrowing costs in a treasury bills auction on Tuesday, underlining an improvement in sentiment towards periphery credits over the summer. Italy is likely to meet with similar strong demand when it auctions T-Bills later this week, said analysts.

The only thing that changes with each phase of the sovereign debt crisis in Europe is that the numbers seem to get bigger. After a week of expectation, the ECB fell short on Thursday and Spanish yields puked once more.

Spain issued €3.13bn of new bonds on Thursday morning ahead of the European Central Bank suggesting that it would not be stepping into help Spanish yields with a resurrection of its Securities Markets Programme (SMP) anytime soon.

Spain has taken aim at the long end for a debt auction which will take place next week. Expectations of ECB intervention are likely to provide enough buoyancy to get the auctions through despite the hair-raising yields which Spanish government bonds reached earlier this week.

Spain sold over €7bn of bills on Tuesday between three and seven months in maturity while its 10 year yields moved north of 7.5%. Meanwhile, Moody’s shifted the outlook on Germany’s triple-A rating to negative.

Spanish bond yields circled perilously high on Monday. The 10 year reached highs past 7.5% leading to fears that a new — and more severe — stage in Europe’s sovereign debt crisis has been reached.