ECB purchases fail to impress at Spain sale

SPAIN was the second shaky Eurozone sovereign to see slow demand at a bond auction this week, despite the likelihood of heavy buying by the European Central Banking (ECB) in the secondary market.

Following on from Italy’s sale on Tuesday, which saw low levels of buyer interest, Madrid issued €3.62bn (£3.19bn) of five-year bonds, less than the maximum target amount it had planned.

It is not known how much the ECB bought in the secondary market, but the Bank recently restarted its intervention in sovereign bond markets.

It did manage to keep a lid on the cost of Spain’s debt: the average yield investors demanded was 4.5 per cent, compared to 4.9 per cent at a similar sale in July.

The price was above that quoted in the secondary market, however, showing that investors are still reluctant to take on new exposure to the country despite the ECB’s multi-billion-euro purchases. The Bank has now bought over €40bn of Italian and Spanish debt in just two weeks.

Meanwhile, Ireland received positive news from LCH.Clearnet yesterday, as Europe’s biggest clearing house reduced the margin requirement for trading its sovereign bonds from 65 to 55 per cent.

The action was based on a sustained reduction in the spread between the yield of Irish bonds and those of benchmark triple-A debt.

The Centre for Economics and Business Research (CEBR) also declared yesterday that Ireland has finally “turned a corner”.

The consultancy said that exports would drag the country out of the doldrums, but that consumers will continue to suffer. CEBR’s Oliver Hogan said: “Although we are now growing again and growth is likely to accelerate, the party is not about to start again”.