The Spanish Treasury had reason to be nervous for the first time in weeks on Thursday morning as it placed 4.6bn euros of bonds in the sovereign market.

Nevertheless, it surpassed its initial target to raise between 3.5-4.5bn euros.

The auction was the first since news of corruption scandals in Spain's People's Party rippled through the international press and pressure began to pick up in debt markets, sending the country's risk premium higher.

Just moments before the auction, the 10-year bond yield on the secondary market was at 5.50% in the secondary market, the highest since December.

As was to be expected, Thursday's bond issues demanded higher yields than in the prior auction. The two-year bond called for a yield of 2.889% compared to 2.587%, the five-year yield was 4.569% compared to 3.808%, and the 16-year yield was 5.822%.

However, demand as measured by the bid-to-cover ratio remained more or less steady.

"All things considered, the Treasury will be pleased it managed to get all its debt out the door at an increasingly sensitive time for Spain," said Spiro Sovereign Strategy managing director Nicholas Spiro.

"However, the result of today's auction reflects the recent shift in sentiment towards Spain: a marked increase in yields after months of declines."

JP

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