Spain Sells 3x Oversubscribed 50-Year Bond

Following a scramble by European nations to issue ultra long-dated government paper, which saw France and Belgium sell 50-year bonds last month, while Ireland and Belgium went all the way and issued century bonds, with even Switzerland locking in 42-year paper yesterday, moments ago Spain was the latest to extend maturities all the way to 2066 when it sold €3 billion in 50 year bonds at Midswaps+50. According to MarketNews, the issue was over 3 times oversubscribed with the orderbook closing at €10.5 billion.

Here are the full details from Bloomberg:

  • Guidance was MS +253 area from IPT +mid/high 250s.
  • Final books over EU10b, including EU1.2b JLM interest: Leads
  • Price 98.998 to yield 3.493%
  • Benchmark spread: SPGB 2.9% 10/2046 +63.5
  • Issuer: The Kingdom of Spain
  • Ratings: Baa2/BBB+/BBB+/AL
  • Format: Obligaciones del Estado (in dematerialised book entry form), Reg S, Cat 1, 144A eligible, CACs
  • Maturity: July 30, 2066
  • Settlement: May 18, 2016
  • Coupon: 3.45% annual, act/act, short first
  • ISIN: ES00000128E2
  • Bookrunners: Barclays (B&D), BNP, CaixaBank, Citi, Santander, SocGen

The demand for duration in the yield starved market was no surprise: As a result of the French €6.75bn orderbook for its 50-year bond, it boosted the size of its half-century offering from €2bn to €3bn, demonstrating just how starved for yield the European continent is.

As a reminder, according to Fitch, there is now $10 trillion in negative yielding government bonds, of which $6.8 trillion in longer-term bonds and the balance in short-term bills. Most of these NIRP issues can be found in Europe, which explains the ravenous demand for any yield. As Bloomberg reminds us, German yields are negative all the way to the nine year point, while half of the total eurozone government debt market now has a negative yield.

To be sure, as long as the European descent ino deflation continues and the ECB is scrambling to find even more accommodative monetary measures, the demand will be there. However, if and when inflation picks up and when yields spike, all those who loaded up on half or full century paper will realize just how adversely massive the duration impact of paper with such a tenor is on P&Ls.

Because if investors though last year's Bund rate shock was bad when 30 year paper spiked by 50 bps in days, they will be rather shocked when they calculate what the DV01 on 100 year bonds is.