“Spain’s borrowing costs rose even as it beat its maximum target of 4.5 billion euros ($6.11 billion) at a debt sale today as corruption allegations targeting the government threaten to reverse last month’s rally.
The Madrid-based Treasury sold a total of 4.61 billion euros of debt, including a 2.75 percent 2015 note with a yield of 2.823 percent, compared with 2.476 percent the last time it was sold on Jan. 10. A 2018 note yielded 4.123 percent, up from 3.770 percent on Jan. 17, and it sold a 2029 bond at 5.787 percent, compared with 5.555 percent at its last 15-year benchmark bond sale on Jan. 10.
The sovereign’s securities led declines among the euro- region’s so-called peripheral countries this week even as German Chancellor Angela Merkel backed Premier Mariano Rajoy after he denied receiving illegal cash payments. Demand for Spanish assets is weakening as the Treasury seeks to fast-track a higher net issuance program this year.
“The upper end of the target range wasn’t overshot significantly showing that positive momentum for peripherals has abated,” Norbert Aul, a rates strategist at Royal Bank of Canada in London said in a telephone interview. “We had a very good start this year for peripheral funding and we see some setback potential over the coming weeks even if it isn’t a full- blown sell-off.”
Bond Demand
Demand for the 2015 note was 2.21 times the amount sold, compared with 2.07 last month, while the bid-to-cover ratio was 2.24 for the 2018 one, compared with 2.32 in January, and 2.02 for the 2029 bonds from 2.85 last month….”
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