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Spain Bond Sale Volume Below Maximum

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12/05/2012 | 11:56am CET

The Spanish Treasury added to its pre-funding for 2013, selling 4.251 billion euros ($5.56 billion) in three government bonds at its penultimate bond auction of the year, with funding costs mostly continuing their recent downward path.

Spain had already hit its official gross bond issuance target of EUR86 billion for 2012 at a Nov. 8 auction, so the cash raised at auctions on Nov. 22 and Wednesday have given it a head start on funding for next year.

Yields rose across the Spanish curve as the auction results came out, but Newedge economist Annalisa Piazza said "we wouldn't read too much out of it as Spain has already funded its financing needs for 2012 and today's auction is only used to pre-fund 2013 needs."

"We suspect the market correction is just temporary and probably due to some profit-taking. We don't see it as an harbinger of rising yields for the EMU [euro-zone] periphery's debt," Ms. Piazza said.

The relatively large EUR3.5 billion to EUR4.5 billion offer size Wednesday "may indicate that the second December auction date will be cancelled," said Commerzbank analyst Benjamin Schroeder. Spain's last bond auction in 2012 is scheduled for Dec. 13.

A recent rally in government bonds among the euro zone's weaker economies, driven partly by the Greek debt buyback deal and Spain's planned bank bailout, has helped lower Spanish funding costs since they hit record highs last summer.

"Starting with the pessimists' arguments, the Greek bond buyback and the Spanish bank recapitalisation deal may have the accounting effects of piling on more unsustainable EU debt onto the periphery. But the reality is that they will improve the periphery's debt sustainability profile," said Lena Komileva, chief economist at G+ Economics.

"Where would Greek or Spanish yields be without the European Union's current [European Stability Mechanism] and potential (ECB) transfers?" Ms. Komileva said. The ECB is able to buy bonds belonging to countries that seek financial help from the EU's permanent bailout fund, the European Financial Stability Facility.

HSBC Trinkaus & Burkhardt expects government bonds of financially stressed issuers to continue the improving trend of the past two weeks, said analyst Sebastian von Koss. Although Italy has some more debt sales before the end of the year, HSBC doesn't expect this supply to put pressure on secondary government bond markets.

The series on offer from Spain Wednesday is a reopening of existing issues.

-Write to Emese Bartha at emese.bartha@dowjones.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

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