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Spain Sells EU5 Billion of Bills at Lowest Rates Since 2010

Source: Bloomberg - Wed 21st Mar 2012
Spain Sells EU5 Billion of Bills at Lowest Rates Since 2010

Spain sold €5.04 billion of bills at the lowest rates in almost two years as ECB lending boosted demand.

€3.6 billion of 12-month bills was sold at 1.418%, the lowest since April 2010, and down from 1.899% at the last auction on Feb. 14, the Bank of Spain said in Madrid today. Spain also sold €1.4 billion of 18-month bills at 1.711%, down from 2.308% previously.

The ECB has loaned euro-area banks more than €1 trillion for three years since December, boosting demand for government securities. Spain's 10-year bond yield has remained at about 5.2%, near the level when the operations began on Dec. 20, after it failed to meet its budget-deficit goal and public debt surged.

Spain sold €5.04 billion of both bills, less than the €5.5 billion maximum target, and demand for the 1 year notes declined. Investors ordered 2.14 times the amount of the securities sold, compared with 2.27 times last month. Demand for the 18-month bills was 2.93 times, compared to 2.88 times on Feb. 14.

Spain's 10-year benchmark bond yield rose 1 basis point to 5.209 basis points 11:10 a.m. Madrid time. The yield was 5.188 before the sale. The yield spread over similar-maturity German bunds widened 2 basis points to 317 points.

Spanish banks' average borrowings from the ECB last month surged to a record of 152 billion euros, three times as much as they were taking a year ago, after increasing their holdings of the nation's bonds to 202 billion euros in December, from 178 billion euros in November, Treasury data show.

Yields fell for both securities even as the nation's overall debt last year overshot the government's forecast of 67.3% pf GDP, surging to 68.5%, the most in more than two decades, from 61% in 2010.

The European Commission forecasts that Spain's debt will have almost doubled to 78% of GDP by next year from where it was when Europe's sovereign debt crisis began, as the country's deficit-reduction efforts are hobbled by a relapse into recession. The IMF expects the economy to contract 1.7% this year.

Euro-area finance chiefs agreed on March 12 that Spain's deficit goal for 2012 was unachievable after the shortfall came in at 8.5% of GDP last year, compared with a 6% target. For 2012, ministers agreed to ease the goal to 5.3% from an initial 4.4%.

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