06.09.2012
By Simon Miller
Spain has got away €3.5bn (£2.77bn) of bonds this morning at a vastly cheaper rate as optimism rises over a European Central Bank (ECB) plan expected to be announced this lunchtime.
Spain sold €3.5bn of two, three and four-year bonds with strong demand and cheaper borrowing cost.
The average yield on the 2014 bonds fell to 2.798% compared with 4.706% in June while 2015 bonds saw a yield of 3.676% down form 5.086% and 2016 bonds at 4.603% compared with 5.971%.
The lower price reflected hope that the ECB will announce an unlimited bond buying plan at lunchtime.
ECB president Mario Draghi's plan falls short of the quantatitive easing in the US and UK as the bond purchases would be 'sterilised', meaning that there would not be extra money going into the economy.
The plan is also believed to remove the ECB's senior status as a creditor making the scheme more attractive to private investors.
Annalisa Piazza of Newedge Strategy told Reuters: "Robust demand is certainly driven by market's 'hope' that the ECB will deliver an effective plan to support southern EMU countries' debt.
"The short end of the curve seems to be the ECB target and the rally seen this morning in Spanish 2-4 year Bonos ahead of the tap is a sign that the market is building up a great deal of expectations for today's ECB press conference."
Nick Spiro of Spiro Sovereign Strategy commented: "Sentiment-wise, this was not so much a Spanish debt auction as a preliminary verdict on the ECB's soon-to-be-unveiled bond-buying plan. The positive result of today's auction, with the full amount sold and a sharp fall in the yields on all three maturities, has very little to do with what's going on in Spain. This is the 'Draghi effect' at work. Right now, Spanish and Italian debt markets are benefiting from expectations that the ECB will intervene forcefully to bring down yields on shorter-dated eurozone peripheral paper."
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