Given the recent market reaction to short- and mid-dated bond auctions in the European sovereign space, it seems the Spanish have blinked and decided to cancel the planned 3Y auction for next week. Reuters is reporting that instead of a single 3Y new issue, they are reopening 3 existing deals in the hope it will be easier to garner demand across several maturities and potentially more fungible for managers to add to existing positions than create new ones. Of course, it really doesn't matter too much as what we are concerned with is the secondary-trading 2015, 2016, and 2017 bonds will now be perfectly repriced at whatever is marginal demand for new risk positions - which we suspect will not be positive. The main reason for the shift to off-the-run, we suspect, is that the ECB is now allowed to 'buy' the bonds (not at re-issue but in the secondary pre-acution) as it is not allowed to buy primary issues. Once again - it smacks of desperation.
The shift to re-opening existing bonds is very much we suspect about the assistance they can garner from the ECB SMP. Theoretically the ECB can enter the existing market and put a bid into those specific bonds, new money bids for the new issues at marginally elevated levels from the secondary and could potentially flip the new issues right into the ECB's pleading hands. Euther way, re-opening as opposed to pure new issuance does have benefits from the central bank's 'visible' hand.
The WSJ reports here.
Reuters: Spain to sell 3 bonds instead of new 3-yr paper Dec. 1
* Bonds have 3 pct, 3.15 pct, 3.8 pct coupons
* Average yield of new 10-yr issued Nov. 17, 6.975 pct (Adds comment, details)
MADRID, Nov 25, (Reuters) - Spain's Treasury said on Friday it has replaced a planned new 3-year bond issue due Dec. 1 with three off-the-run bonds maturing in 2015, 2016, and 2017.
The announcement came after short-term debt yields in Italy - already struggling with higher borrowing costs than Spain - surged to levels regarded as unsustainable for public finances at a tender.
"It seems a sensible thing to do as there is a lot of pressure on the front-end right now," said Peter Chatwell, strategist at Credit Agricole.
"Also, Italy will sell a new three-year issue too so it will make it easier for the market to absorb by issuing at different maturities."
Spain has been under intense market pressure amid concerns euro zone leaders are not moving fast enough to resolve the debt crisis and yields on a new 10-year bond last week came close to the 7 percent level widely considered as unaffordable.
The bond maturing April 30, 2015 has a coupon of 3.0 percent, the bond maturing Jan. 31, 2016 a 3.15 percent coupon and the bond maturing Jan. 31, 2017 has a 3.8 percent coupon.
The Treasury is due to announce target amounts for the auctions on Monday around 1300 GMT