Demand for Spanish, Italian government paper described as healthy
By William L. Watts, MarketWatch
LONDON (MarketWatch) -- Strong demand at Italian and Spanish government debt auctions on Thursday provided some relief to jittery financial markets, strategists said.
A sale of 3 billon euros ($3.6 billion) of three-month Italian paper attracted bids totaling €10.154 billion, for a bid to cover ratio of 3.38 to 1 and an average yield of 0.836%, the Italian Treasury said. A sale of €5.5 billion of 12-month paper was covered 2.35 times, with an average yield of 1.377%.
The results "confirm the strong interest for Italian paper," said Chiara Cremonesi, fixed-income strategist at UniCredit Bank, particularly since the total amount on offer exceeded last month's auction by €3 billion.
The Italian results followed Spain's sale of €3.9 billion of 2.5% three-year paper. Spain had planned to sell between €3 billion and €4 billion. The auction produced a bid-to-cover ratio of 2.1 to 1, exceeding the 2-to-1 ratio at the last auction, which was a tap of the 10-year benchmark, Cremonesi said.
The auction produced an average yield of 3.31%, compared to 3.5% in the secondary market ahead of the auction. The government said more than half the bids came from non-resident investors, Cremonesi said.
The results helped narrow yield spreads between peripheral euro-zone government bonds and German bunds. The cost of insuring peripheral euro-zone government debt against default also came down.
The spread on five-year Spanish credit default swaps narrowed by 20 basis points to 220 basis points, Markit said. That means it would now cost $220,000 a year to insure $10 million of Spanish debt against default, down from $240,000 on Wednesday.
The CDS spread on Italian debt also narrowed by 20 basis points, to 190 basis points. The Irish CDS spread narrowed to 230 basis points from 258, while Greece narrowed 43 basis points, to 715, according to Markit.
The French CDS spread, which had jumped earlier this week amid concerns about French banks' exposure to the euro-zone periphery and Eastern Europe, narrowed eight basis points, to 83.
The British CDS spread narrowed to 82 basis points from 88, Markit said.
