Spain has cash to meet July bond payments

 

Spain's Treasury has sold enough debt to deal with a 24 billion euro repayments crunch in July, an Economy Ministry source said on Thursday, hours after a successful tender of long-dated Spanish bonds.

With next month's debt commitments fuelling broad-based market concerns that Spain could face a Greek-style fiscal crisis, the source said the two countries' funding profiles were not comparable. Spain earlier pushed through the sale of 3.5 billion euros of 10- and 30-year bonds, albeit at a high premium -- sparking a relief rally in the euro and European stocks hit by persistent speculation over a possible liquidity squeeze on Spanish banks.

Madrid, which must settle 16.2 billion euros in bond redemptions and around 8 billion euros of treasury bills next month, "does not need to go to the market" to cover the payments, the source said.

But this did not mean Spain did not plan to issue more debt over the next few weeks, the source added.

"A lot of people were talking about July 30 as D-Day for Spain and the euro zone, though I believe they've got the money" said economist at 4Cast Jose Garcia Zarate.

"It was an ideal day for this news to come out as it was backed by the auction in the morning and the news that Santander has the best rating in European stress tests." he said.

Santander, Spain's largest bank, has the best rating so far in European bank stress tests, a Spanish government source said on Thursday.

Spain's Treasury has flagged plans to issue 3- and 6-month bills on June 22 and July 27 and 12- and 18-month bills on July 20. A complete calendar for bond issues over the third quarter has yet to be published.

Some investors were making the mistake of comparing Greece's need to raise funds on the market to meet payment requirements in April and Spain's position in July, the source said.

Greece was forced to ask for EU aid as it faced up to a similar slew of repayments in April and May. Officials have vehemently denied market rumours Spain will need some sort of rescue to meet its obligations.

The Treasury's debt plan was a long-term strategy which did not force the government to issue fresh debt every time a bond matured, the source added.

"The treasury always plans its refinancing strategies so that its most important redemptions are met and so that it always has the resources to meet those redemptions.

"This includes the liquidity that it has at its disposal and the regular state income which the treasury administers."

Spain gets its biggest slice of tax revenues over the May to July period from businesses and companies, though the tax take has slumped in Spain's prolonged economic downturn.

Media reports over the last week have claimed Spain would need to apply to the European Union or the International Monetary Fund for aid in the near term. Madrid, the IMF and the EU denied the reports.

The treasury drew strong demand at Thursday's bond sale, hitting the top of its target range but paying a hefty premium compared with previous issues of the same paper.

The spread between Spain's 10-year bonds and Germany's Bunds swelled to a euro lifetime high of almost 240 basis points earlier on Thursday but came back in to 215 basis points by 1500 GMT.