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:
NICHOLAS SPIRO, SPIRO SOVEREIGN STRATEGY, LONDON
"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."
SERGIO CAPALDI, FIXED INCOME STRATEGIST, INTENSA SANPAOLO, MILAN
"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."
PETER CHATWELL, RATE STRATEGIST, CREDIT AGRICOLE, LONDON
"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."
ALESSANDRO GIANSANTI, STRATEGIST, ING, AMSTERDAM
"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."
ACHILLEAS GEORGOLOPOULOS, RATE STRATEGIST, LLOYDS, LONDON
"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."
LYN GRAHAM-TAYLOR, RATE STRATEGIST, RABOBANK, LONDON
"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."