Spain Raises More Funds Than Target At Lower Cost

The proceeds from a sale of Spanish debt on Tuesday exceeded the maximum target as demand for the one-year paper improved and borrowing costs declined.

The Treasury successfully placed EUR 4.94 billion of 12-month and 18-month bills versus the EUR 4.25 billion maximum target set for the sale.

The agency placed EUR 3.4 billion of 12-month bills at an average yield of 4.050 percent, down from 5.022 percent in the previous auction held on November 15. Demand was 3.14 times the amount on offer, up from 2.1 in the previous sale. The auction attracted bids for EUR 10.824 billion.

The yield on the 18-month paper fell to 4.226 percent from 5.159 percent in the November auction. The Treasury sold EUR 1.498 billion of the bills versus the bid amount of EUR 7.452 billion. The bid-to-cover ratio was 4.97, down from 5.96 in the previous sale.

The news of some respite for Spain came as the country's Parliament held its first session today following the November 20 landslide victory of the People's Party led by Mariano Rajoy.

Yesterday, Italy successfully placed EUR 7 billion of 12-month treasury bills in an auction at lower cost after the government approved an extensive budget plan last week.

Meanwhile, Greece had to pay a higher rate for its short-term debt. The debt-laden country, which tapped markets after Spain, raised EUR 1.625 billion from a sale of its 6-month treasury bills. The yield rose to 4.95 percent from 4.89 percent in a November 8 auction. The bid-to-cover ratio, however, improved to 2.93 from 2.91.

A mission of the troika, which consists of the European Commission, the European Central Bank and the International Monetary Fund, started a visit to Athens yesterday. Troika officials are holding talks with Greek authorities regarding the second bailout deal.

The Greek Finance Ministry reported today that the country's budget deficit widened 5 percent in the January to November period to EUR 20.5 billion. The 2012 budget plan, approved last week, aims to cut the budget deficit to 9 percent this year.

Elsewhere today, Belgium raised short-term funds at lower cost. The debt agency sold EUR 1.101 from the sale of two types of treasury certificates. It was the final sale of the year.

The yield on the 3-month Belgian treasury certificates plunged to 0.78 percent in the latest sale from 2.185 percent in a auction held on November 29. The agency sold 12-month debt at a yield of 2.167 percent, which was less than 3.396 percent in a November 15 sale.

Demand was strong for the 3-month Belgian debt at 8.59 times, up from 5.61 in the previous auction. The cover ratio for the one-year debt was 2.21 percent, up from 1.64 percent.

Last week, a new coalition government led by socialist Elio Di Rupo was sworn into office, ending a long political crisis that had left the country without an elected administration for 540 days. The country's major political parties reached a deal on November 26 to agree the austerity budget, after rating agency Standard & Poor's cut the country's credit rating citing the political impasse.

Also today, the Eurozone bailout fund held its first bill auction as part of its short-term funding programme. An auction of short-term bills by the European Financial Stability Facility (EFSF) saw strong demand and the facility raised more than EUR 6.2 billion. Over EUR 2 billion bids were non-competitive. The bid-to-cover ratio was 3.2.

The EFSF sold three-month bills of EUR 1.971 billion at a yield of 0.2222 percent. The maturity date is March 15, 2012. The auction was carried out by the German Finance Agency using the Bundesbank's EFSF bidding system.

Last Friday, the European Union agreed to establish a new "fiscal compact" to move towards a stronger economic union and budget discipline. But, the deal was rejected by the U.K., which was demanding protection for its financial sector.

The Friday EU summit also decided to boost the International Monetary Fund resources by EUR 200 billion to deal with the debt crisis. They also laid out a plan to accelerate the entry into force of the EUR 500 billion-European Stability Mechanism by July 2012.

Despite a series of summits, analysts say EU leaders are yet to find a concrete solution to the sovereign debt crisis. Today, Moody's Investors Service said that it intends to review the ratings of all EU sovereigns during the first quarter of 2012, citing a continued absence of decisive policy measures.

Ahead of the crucial EU summit last Friday, rating agency Standard and Poor's placed the ratings of 15 Eurozone nations, including Germany and France, under 'CreditWatch Negative'. Two days later, S&P placed the debt rating of the European Union under the 'CreditWatch' with negative.