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Spain Sells The Smallest Amount Of 10 Year Bonds Since 2004 At A Yield Over 6%

Tyler Durden's picture


On the surface, the overnight Spanish bond auction, in which the country sold a tiny €2.1 billion of 2, 4 and 10 year bonds was a success, simply because it wasn't a failure. Anywhere below the surface and things get fishy. The Treasury sold €638 million of a 2-year bond, €825 million of a four-year bond and €611 million of a benchmark 10-year bond. And while the bid-to-cover ratios were higher than at recent auctions, with the 2012, 2014 and 2022 bonds covered 4.3, 2.6 and 3.3 times respectively, so were the yields: the 2014 bond was issued at a yield of 4.335 percent, the 2016 bond at 5.353 percent and the 2022 bond at 6.044 percent, a lower price than the 6.14 percent the same maturity bond trades at in the secondary market. In other words, Spain is back to using the same tricks it did back in the fall when bonds would magically price well over 10 bps inside of fair value. Just don't ask why.  More notably, as Bloomberg reminds us, this was the lowest amount allotted to a 10 year note since 2004. In other words Spain sold the bare minimum of the longer-bond just to keep up with appearances: an amount likely recycled by its broke banks, which scrambled to get the last remaining LTRO cash and to show just how strong the demand for the country's debt is. In fact as Nicholas Spiro of Spiro Sovereign said, "If it wasn't for its banks' continued support at auctions,
Spain would be unable to sell its debt. Right now confidence in Spain is
at an all-time low."
Either way, the good news is that according to Spain it has now covered 58% of its borrowing needs for 2012. the bad news: 42% remains uncovered. Especially in the aftermath of an EU announcement that not only has it not received an aid request from Spain, but that there is no EU rescue plan for Spanish banks. Europe has now completely lost the script and is making up day by day.

Reuters has the analyst snap view on the auction:


"Although a very modestly sized auction, this was a nerve-wracking one nonetheless. The Treasury will be pleased that the sale was comfortably covered but displeased with the size of the concession.

"Although the yield on the 10-year is just a tad below secondary market levels, these are prohibitive rates which underscore the dramatic deterioration in Spain's perceived creditworthiness.

"If it wasn't for its banks' continued support at auctions, Spain would be unable to sell its debt. Right now confidence in Spain is at an all-time low."


"It was a little bit better than I was expecting. Of course they have issued the maximum amount that they were targeting and this is good news. The bid to cover ratios were higher than previous auctions generally.

"Only the tail of the auction was a little bit too fat. That signals anxiousness on the part of the investors, so that was the only weak spot of the result of this auction.

"By and large it is a good auction and it is another step towards normalisation of the Spanish funding condition."


"It's a strong auction, no doubt helped by the relatively small size, but nonetheless tapping into the post-ECB meeting theme of further closing out of periphery short positions.

"A good auction today does not reverse the trend of rising yields, all it really shows is that there was good demand for the paper on the day."


"It went quite well, they sold more than 2 billion, the bid to cover was fine. It was a good auction. The amount was very limited, and especially in the five-year to the 10-year there was some cheapness on the curve that helped them rally into the auction. There is a better environment over the last few days for Spanish bonds. Talk of a rescue for Spanish banks is the thing that is reducing risk aversion in the markets."


"The market will be pleased with the auction size, the bid/cover, the prices at the auction that were below the bid prices at 0930 (0830 GMT). Clearly there was demand for it, it was one of the good auctions.

"I'm sure he (Treasury Minister Cristobal Montoro) meant to say that they can't raise an extra 20 billion with the market not to be scared about it. But this was another 2 billion.

"If the auction was messed up then you would be 100 percent sure that Spain would need a bailout, a proper one. It was a very, very bad comment to make.

"The market is still trading on the fact that there is a solution in the background. But that's a bit exaggerated, we all know what Germany's position is and what Spain's position is."


"There was a big move downward in Spanish yields going into the auction which seemed to have been driven by the hope that there is shortly to be joint action by several of the major central banks. However, in terms of the auction results, yields are still significantly above the levels seen when these bonds were last auctioned.

"A strong set of bid/covers, as was expected, probably driven by domestics. Spain can clearly still borrow in the markets but it must pay high yields for the privilege."

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Thu, 06/07/2012 - 06:55 | 2502680 maxmad
maxmad's picture

Bonds.... get your bonds..... C'mon people if you dont start buying these bonds, we'll just take your savings and 401k's and pensions... its your choice?

Thu, 06/07/2012 - 07:08 | 2502694 Chris Jusset
Chris Jusset's picture

Says ZH:


Spain sold the bare minimum of the longer-bond just to keep up with appearances: an amount likely recycled by its broke banks, which scrambled to get the last remaining LTRO cash and to show just how strong the demand for the country's debt is.


And yet, this house-of-cards has resisted collapse for over three years ... as crappy junk gets repackaged and recycled ad infinitum.  Apparently, as long as Germany sanctions this behavior, it will continue up until the very end. 

Thu, 06/07/2012 - 07:10 | 2502700 slackrabbit
slackrabbit's picture

Wow. I better put my kids college funds in there as well...og that's right our leaders   have already done that!

Thu, 06/07/2012 - 08:20 | 2502965 TrainWreck1
TrainWreck1's picture

"Spanish authorities are rethinking the wisdom of naming them 'FaceBonds'..."


Thu, 06/07/2012 - 06:58 | 2502682 GeneMarchbanks
GeneMarchbanks's picture

Couldn't this really be extended to just about every single Western nation?

"If it wasn't for its banks' continued support at auctions,
Spain would be unable to sell its debt. Right now confidence in Spain is
at an all-time low."

Nicholas Spiro vox nihilo.

Thu, 06/07/2012 - 07:16 | 2502721 Chris Jusset
Chris Jusset's picture

Indeed ... this is one big circle-jerk in which all Western nations are complicit.  Every nation must maintain appearances lest the house-of-cards collapse.  Fraud is to be embraced ... while delusion and deception remain the lifeblood of continued existence.

Thu, 06/07/2012 - 07:08 | 2502695 LongSoupLine
LongSoupLine's picture

I saw the Spanish bond auction on craigslist. It was right next to the washing machine for sale that doesn't work but is good for parts.

Thu, 06/07/2012 - 07:12 | 2502708 moriarty
moriarty's picture


 Slightly off subject but does any one know of a way to follow ITRAXX’s X-over for us lowly folk with out a Bloomberg terminal?

Thu, 06/07/2012 - 07:19 | 2502732 disabledvet
disabledvet's picture

So if the Germans "bail out" otherwise healthy Spanish Banks and Spain still ends up going under would that be considered a success?

Thu, 06/07/2012 - 07:19 | 2502733 firstdivision
firstdivision's picture

LOL!  Sterling to the freaking moon.  Guess all is well with England.  Love pre-market goosing for Ben.  Guess its time for the usual, go long dollars 2 minutes before his speech.

Thu, 06/07/2012 - 07:25 | 2502760 Flying Tiger Comics
Flying Tiger Comics's picture

All hail the hypno-bonds!

Malibu Stacy with a new hat is still just the same hunk of plastic.

Thu, 06/07/2012 - 07:37 | 2502814 lolmao500
lolmao500's picture

According to Bilderberg info leaked... Spain will be sacrificed.

Thu, 06/07/2012 - 07:42 | 2502838 DutchDude
DutchDude's picture

Spain is too big to bail... ESM won't be ready in time so i guess ECB will have to start stepping in on the background...

Thu, 06/07/2012 - 07:40 | 2502827 westboundnup
westboundnup's picture

There's a method to the madness.  Insolvent banks buy insolvent soverign debt.  When it collapses, there will be the introduction of a global currency controlled by a global central bank.

Thu, 06/07/2012 - 07:45 | 2502844 Stock Tips Inve...
Stock Tips Investment's picture

Most of these bonds must have been purchased by the ECB or with money from the ECB. I wonder: A private investor would be willing to take a risk like that of Spain for a yield of 6%. I ... in any way.

Thu, 06/07/2012 - 07:54 | 2502864 tahoe996
tahoe996's picture

Numerous writers on this site have commented that Spain is too big to save. Now we see the EU and the Germans are looking for ways to fund the Spanish banks directly and avoid having to insist on austerity plans if the money went thru the government. Looks like Spain is not to big to save.

Thu, 06/07/2012 - 08:13 | 2502938 Cupid Stunt
Cupid Stunt's picture

Will the sky fall one day or is all this crap death by a thousand cuts ?

Thu, 06/07/2012 - 08:46 | 2503036 tim73
tim73's picture

According to ZH, Spain bond auctions should be by now all failures?! Maybe you should go back reporting only happenings in the USofA because you do not know jackshit about Europe.

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