Mixed Results As Spain Sells More Bonds Than Expected, But Pays Up As Yields Again Spike - Analyst View

Tyler Durden's picture

Traders were watching Spain cautiously this morning which at around 4 am Eastern sold €2.52 billion of three- and five-year government bonds, in its first bond auction since Standard & Poor's cut its sovereign rating by two notches last week. The results were mixed because while more than the maximum range of €2.5 billion was sold (on solid total demand of €8.07 billion) or €2.52 billion, Spain paid up for the privilege, with yields rising across the board, reaching just why of 5% for the 2017 bonds and more importantly pricing with tails to secondary market prices, confirming that the trend in rising yields at primary issuance is very much unsustainable. This in turn caused the EURUSD to get spooked and slide to overnight lows, a move not mimicked by broader equity futures which this morning are again in a world of their own, and now simply await to see if the Initial Claims number later will be far worse than expected in order to soar.

Th Spanish auction details were as follows:

  • €979 MM in 4% 2015 bonds sold at 4.037% yield, vs 2.89% yield last; bid to cover 2.88 vs 2.41 previously
  • €765.4MM in 3.8% 2017 bonds sold at 4.752% yield, last was 4.319%, bid to cover 3.69 vs 2.46 previously
  • €773 MM in 5.5% 2017 bonds sold at 4.960% yield; bid to cover was 3.14

Elsewhere, France also sold €7.43 billion of bond maturing in 2017, 2021, 2022 and 2025 in a rather uneventful auction, which will get far more eventful once Hollande is officially president in about 4 days.

Below is the analyst instantview via Reuters from the sellside to both the Italian and French auctions:


"It looks like some of the uncertainty related to the presidential election hasn't weighed too much, they managed to get the full amount away with lower yields and decent bid/cover."

"There has been a closing of the gap in terms of the differences between Hollande and the prevailing wisdom in Europe. Hollande has softened his stance a bit on the fiscal compact and explained that he didn't want to renegotiate it completely, he just wanted to add some pro-growth measures.

"Draghi and Merkel have sounded relatively flexible on that recently. There's a realisation that pure austerity alone may not work. The conflict that the market had perceived to happen if Hollande came to power may not be as insurmountable as first thought."

(On France):


"Solid as normal, tight tails, decent yields. What political risks?"


(On France):

"The amount is at the top of the target range and all lines were well covered. Most of the supply was concentrated at the 10-year segment...Note that the 10-year benchmark looked cheap versus previous rolls ahead of today's auction, trading around 5 basis points cheaper than the previous 10-year benchmark.

"The three off-the-run OATS were also well covered today. The re-opening and good cover is a clear sign that dealers still have shorts open on the line. Despite the political uncertainties, today's OATs auction was well bid. The relatively modest amount on offer was a supportive factor."

(All comments below on Spain):


"It's pretty mixed. The most positive points are the Spanish authorities managed to raise the maximum 2.5 billion amount and bid/covers were pretty healthy, suggesting demand was there. But yields were higher than a month ago, which clearly shows Spain is able to get its auctions away but investors are demanding a higher risk premium to do so. It's a pretty mixed backdrop, hence ongoing worries about the fiscal position of Spain will persist but I don't think it's a sufficiently weak auction to push Bund yields to new lows."


"Overall it was quite good, they sold the full amount, bid/cover was quite high, it sends the message that the Spanish banks can still support auctions."

"The tail seems a bit elevated, but that was expected. Spanish spreads will remain under pressure until we hear some details about what they will do with their banks ... There's nothing significant coming up that can help them. The only thing to improve the situation would be better data across Europe."


"A strong set of bid/covers but yields are at significantly elevated levels to when these bonds were last issued. It would appear that the LTRO related demand that saw a significant reduction in yields is now at its end and it is difficult to not see Spanish yields continuing an inexorable rise from here given the poor economic figures and the increasing talk of a bank recapitalisation being required."


"The cover was good, they sold marginally more than they were targeting, the tail is not too bad all things considered. However, relative to market levels at the time of the auction, we are really much more towards the bid side than the offer side.

"It's OK to good but there are some caveats on it."


"Bid cover ratios looks decent, as does the amount sold, but it is the prices of the auction relative to the secondary market which has disappointed the market a little, causing the lines to sell off on release of the results. I think this is the new normal which the market has to get used to as the strong LTRO-driven bids are a thing of the past."

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LeBalance's picture

oh and where oh where could all that "money substitute" have "sprung into being instantly" to purchase said "instantly created debt money substitute?"

i just don't know who snapped their fingers and spake "Presto."

could have been anyone.

GetZeeGold's picture



Anyone got a picture that that loco buyer?


orangegeek's picture

More debt means watch the markets climb.  Europe is up, as of this moment, over ONE PERCENT.  The worse the news, the higher the markets go.  Someone stop this ride!!  I'm getting sick!!


SP500 still in a primary bearish count.  Volume is declining significantly.  Not a sign of strength.


Non Passaran's picture

And commodities aren't picking up either.
What's needed is ECB's indication it may cut interest rates in June.
In the meantime there is enough LTRO money to keep the EU bond circus going.

GetZeeGold's picture



Why do you think they're smashing the commodities?


Clearly Ctrl+P with a vengence is coming.


Blue light special on the commodities.....don't be late.


Croatian Patriot's picture

Debt, debt and more debt!

GetZeeGold's picture



Got a better idea.....we'd love to hear it.


Ghordius's picture

The analyst's comments sound a bit like: Olé! - the sound of the crowd at the corrida

chump666's picture

mad mario at the helm PIIGS debt auctions won't make much sense,  yields spiked on this auction!

LongSoupLine's picture

Using the term "sells" or "sold" bonds is not accurate anymore in this global central bank driven liquidity puke fest.

Sell and sold should be replaced with "transfered" "stuffed" "ponzied" or even "gifted with middle class funds".

hornster's picture

It's like the IOU's in the movie Dumb and Dumber.

Big Slick's picture

That's as good as money, sir.


"Here's one that says 'I owe you one Lamborghini.'  Might want to hold on to that one."

ivana's picture

It's hilarious!

ecb holds banks as hostages (they must deposit (WHOSE?) cash at ecb) and makes deal stuffing them with 1% loans and then same banks buy gov bonds at 3-4-5% ... like governments will "earn" more per year and pay back ... what a "market economy"... what a disaster ... bid to cover and similar BS

In USA you have TBTF banks in EU we have TBTF governments!

system down system down

need formatting (which will not happen anytime soon cause it's all according to well defined script)

barliman's picture


Barliman's Plain Engrish Market Update:

"There is high risk apetitte among Spain's banks which expect the yields to increase significantly in the next 0 - 30 days providing them with some market collateral they can mix in with the complete shite they hold on Spanish mortgages. Some of the potential appreciation over that same time period has already been priced in by the market (tail risk) demonstrating they foresee an opportunity much larger than Greece to bend the country of Spain over a barrel and bugger it completely senseless before the end of Q2.  The spread on the German bunds remained low as Angela "Forearm Fisting Strap-on" Merkel's government signaled they  they did not want any German banks prematurely shooting their wad and reducing the bid to cover on Spanish and French bond auctions."


youngman's picture

I guess the 4.7% is a good return with 25% unemployment.....lol