Spain gauges US demand for a dollar bond

Spain could be about to bring its first dollar deal since 2010, marking an important step in the rehabilitation of its capital markets funding

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Ignacio Fernandez-Palomero Morales, deputy director of the debt division within the Spanish Treasury, told EuroWeek on Thursday that the country could look to bring a dollar benchmark after next week’s non-deal roadshow in the US.

"If the demand is there and the pricing is reasonable then we could do a dollar benchmark after the roadshow," said Morales. "We have kept our dollar benchmark programme open although we haven’t printed since 2010."

All will depend, however, on the feedback gained from an investor base that has seen recent visits from a clutch of the country’s European periphery peers — and on how quickly Spanish secondary levels recover from a political scandal that shook up spreads this week.

"We expect to get feedback from investors next week — we haven’t even seen levels yet," said Morales. Citi and Deutsche Bank are organizing roadshows on the east and west coasts next week. Others may be added in the mid-west if the interest is there.

If suggested levels were to Spain’s liking, any resulting deal would follow the country’s enormously successful 10 year euro benchmark that it brought to market in January — an issue that has sparked the interest of accounts in the US.

"We had some queries from investors in the US asking if we’d roadshow, particularly as Spanish debt has been in the news after our 10 year euro benchmark," said Morales. "Italy, Ireland and Portugal have all been to the US in recent weeks so it makes sense for us to go as well."

But the moves also come at a time of sudden turbulence in Spanish spreads, as markets digest an unfolding political scandal involving the governing People’s Party of prime minister Mariano Rajoy, after a local newspaper last week leveled allegations of corruption at the party.

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Spanish government bond yields spiked this week in response, and some SSA market participants warned that the sovereign might need to bide its time in attempting its dollar print even if it thought that it could get a deal away.

"At some point there will be a window — there’s no question — but spotting the window will be the hard thing," said a head of SSA syndicate. "It’s not there right now. We’ve come off the highs, we need to reset a little now. It will open up, but it’s not clear when that will be."

Another SSA syndicate banker warned that broader sentiment had changed over the past couple of weeks from a strong appetite for risk to a slightly more cautious approach, given forthcoming Italian elections and the almost $1 billion of losses revealed at Italian bank Monte dei Paschi — and now the Spanish political situation.

"I’m sure we’ll come through it and no doubt there will be opportunities at some stage but we’re not there yet," he said.

Spain’s 10 year yields closed at 5.44% on Monday, up 23 basis points from where they closed on Friday, but recovered on Tuesday afternoon to around 5.36% before widening to 5.42% on Thursday.

Meanwhile, Italian 10 year yields closed 14 basis points higher at 4.46% and had widened to 4.58% by Thursday’s close, with analysts attributing the increase to concerns over the upcoming Italian election and former Prime Minister Silvio Berlusconi’s improving performance in polling. Berlusconi is not seen as a stabilizing influence by bond markets.

"Numerous clients — in core and periphery countries — had voiced concern that the rally had gone too far, too fast," said Richard McGuire, senior fixed income strategist at Rabobank in London. "Some said they would take money off the table and that may have been one driving factor behind spreads widening.

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