France, Spain clear bond auction hurdle

Thu Apr 19, 2012 7:26am EDT
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By Paul Day and Alexandria Sage

MADRID/PARIS (Reuters) - France and Spain sold all the bonds they wanted at auction on Thursday, though for Spain the cost was rising yields, indicating growing concerns the government will not be able to tame its deficit.

After a brief respite fuelled by a trillion euros of cash the European Central Bank (ECB) lent Europe's banks in December and February, markets are becoming nervous again about euro zone debt loads, with fears that Spain might follow Greece, Ireland and Portugal in needing a bailout from international lenders.

That has put pressure on bond yields in the region, notably for Spain and Italy.

The Spanish treasury said it sold 2.5 billion euros ($3.3 billion) of two bonds, taking its issuance to half its gross target for the year.

It received bids for 3.3 times the offer on the shorter of the two bonds, and 2.4 times the longer, both up on previous auctions, suggesting Spanish banks were making the most of the ECB's bounty.

France shifted 7.97 billion euros of medium and long-term bonds, with investors bidding for nearly three times the amount on offer, despite jitters on the secondary market before a presidential election that polls suggest will be won by Socialist Francois Hollande in the second round on May 6.

Spain, which has seen debt costs jump since early March, when Prime Minister Mariano Rajoy abandoned the deficit target previously agreed with its European partners, sold 1.1 billion euros of a bond maturing October 31, 2014, at an average yield of 3.463 percent.

It also tested market appetite for a longer-term benchmark bond, due January 31, 2022, selling 1.4 billion euros at a yield of 5.743 percent, up from 5.403 percent at the last primary auction in January.   Continued...

A trader reacts in front of his screens during a bond auction at a trading floor in Madrid April 19, 2012. REUTERS/Andrea Comas