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Summary Of Europe's Sovereign Bond Auctions

Submitted by Tyler Durden on 04/24/2012 06:06 -0400

Following yesterday's disastrous European economic data which basically missed everything, it was time for a Spanish Bill auction to fix everything, same as always (if only this time there was no surge in some German confidence index). Below is a recap of all of today's ECB cash recycling operations, aka auctions, which have given the overnight futures an uplifted. Still, we wonder why: the yields on all were higher across the board, which in turn means that sovereign funding is getting increasingly unsustainable.

Spain sold a total of EUR1.93 billion in 3 and 6 month bills as EUR2 billion was targeted with borrowing costs rising, while BTCs were mixed.
- The EUR725MM 3 month auction saw a yield 0.634% nearly double the March 27 yield 0.381% yet a soaring Bid/Cover of 7.61 vs 3.51 at auction on March 27
- The EUR1.21MM 6 month auction saw a yield of 1.580%, also double the March 27 auction of 0.836%, only this time the Bid/Cover plunged to 3.25 from 5.56 previously
- As a reminder this auction was originally supposed to be EUR3 billion and was cut by a third following the recent rout in Spanish bonds.

Netherlands was another country which sold Bill equivalents by placing EUR1 billion of 3.75% 2014 Bonds, or in other words paper that matures inside the LTRO and is meaningless in terms of actual demand, as it merely piles up Europe's rollover needs around the time of LTRO expiration. However, it also sold EUR0.995billion in 2037 paper at an average yield f 2.782%
- The good news is that despite the fact that the country's cabinet just resigned, the yield 0.523% was lower compared to the 0.618% printed at the 0.75% 2015 auction on March 13
- Of the 25 year bonds, which saw EUR995MM total sold, the average yield rose to 2.782% vs 2.736% at 2.50% 2033 auction on March 6
- Finally, the maximum offering size was EUR 2.5 billion, so the total issuance demand was 20% below max. Yet somehow this was "good enough"

Finally, Italy sold a total of EUR2.5b in Bill equivalent Zero Coupon 2014 bonds (again inside TARP), meeting the issuance target.
- The average yield soared to 3.355% vs 2.352% at the auction on March 27
- The Bid/Cover declined to 1.80 vs 1.86 at auction on March 27

Like we said a busy day, in which the key player was once again the ECB, which continues to provide cover for all short-term issuance which mature inside the LTRO due date, which while guaranteed, merely mean that the rollover risk is soaring exponentially for the day when the LTROs finally expire.

And since of all the auctions today, the most important was the Dutch one in the aftermath of this weekend's turbulent events, here is the market's instantview via Reuters:

MICHAEL LEISTER, RATE STRATEGIST, DZ BANK, FRANKFURT

"The figures look all right."

"It doesn't seem to be anything surprising. The negative news doesn't extend further given that the auction is ... a solid one."

"It will be sufficient to keep the tightening momentum that we see in Dutch spreads across the curve going."

MARC OSTWALD, STRATEGIST, MONUMENT SECURITIES, LONDON

"It's been sold essentially around market levels which is good but the fact that they have only sold 1.995 (billion euros) against a target of 1.5 to 2.5 (billion euros) will probably have some of the ... non-bond market participants questioning whether there is really any demand and fretting.

"It's very frequent for the Dutch to sell roughly in the middle of their target range."

LYN GRAHAM-TAYLOR, RATE STRATEGIST, RABOBANK, LONDON

"The longer-dated bond is a bit of a soft result but by no means a disaster given we've seen the biggest upheaval ahead of a Dutch bond sale for many years."