Spain sells €3.22B in bonds with lower borrowing costs

The Spanish government auctioned €3.22B in bonds maturing in 3 and 5 years on Thursday. Average yields on the mid-term bills fell to 2.636% and 3.561%, respectively.

Spain sells €3.22B in bonds with lower borrowing costs

by Mario Santa
WBP Online

Madrid - The Spanish Treasury auctioned €3.22 billion in short-term bills on Thursday, above the target of €3 billion. Yields on 10-year government benchmark bonds were seen at around 4.6118% after the auction, retreating from the 5.1028% seen on June 24, the highest since February's crucial election.

The government sold €0.547 billion of the zero coupon 3-year bills. The yield declined to 2.636% compared to 2.768% seen in the previous auction on July 18. The bid-to-cover ratio was 3.32 versus 2.57 seen previously.

Spain sold 5-year bills worth €2.673 billion. The average yield on zero coupon bills was 3.561%, down from the 3.735% demanded by traders in the previous auction on July 18. Market demand exceeded the supplied volume 1.74 times versus 2.10 times at the last auction.

Benchmark 10-year bond yields were seen at 4.6118% after the auction, edging higher from the almost three-year low seen on May 3, when yields retreated to 4.19%, levels that had not been seen since October 2010.

GDP contracts

Flash Spanish gross domestic product (GDP) dropped 0.1% in the second quarter of the year, in line with analysts' projections, after recording a 0.5% drop in the previous quarter, the National Institute of Statistics reported on July 30.

On an annual basis, GDP contracted 1.7% compared to a 2.0% decline in the previous quarter, and was almost in line with market expectations. The drop was caused mainly by weaker domestic demand, which was partially offset by a positive contribution from external demand, the institute said.

This year will most probably be another year of recession, as the country faces a widespread slowdown in both consumer and investment spending, record-high unemployment and the aftermath of the bursting bubble in its real estate sector which sent house prices tumbling.

The drop in economic output is likely to put further pressure on the government's finances. The general government gross debt is expected to peak at 101% of GDP in 2014 after an estimated government debt ratio of 88.4% of GDP in 2012, the latest European Commission forecast shows.

Unemployment rate falls

The unemployment rate in Spain fell to 26.26% in the second quarter, the statistical office reported on July 25.

The second-quarter figure fell for the first time since the third quarter of 2011. Markets had expected the latest rate to come in at 27.20%. In the first quarter, the country's jobless rate stood at 27.16%.

Youth unemployment eased to 56.14% in the second quarter compared to 57.22% in the first quarter.

While unemployed men under the age of 25 eased in the second quarter to 56.3% from 59.21% in the first quarter, the number of women in the same category rose to 55.95%, up from 54.96%.

Spain manufacturing drops

The final manufacturing Purchasing Managers' Index for Spain dropped to 49.8 in July, from 50.0 in May, when the 25-month sequence of deteriorating operating conditions ended. The 50-point reading signaled no change in business conditions over the month.

Analysts had expected a reading of 50.6 for the last month.

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