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Spain attracted the largest ever order book for a sovereign bond on Wednesday, capping a series of blockbuster eurozone debt sales at the start of 2024.
The eurozone’s fourth-largest economy drew €138bn of bids for €15bn of new 10-year debt — record demand for an individual government bond.
The bumper demand for Spanish bonds comes after debt sales in Belgium and Italy on Tuesday also attracted frenzied orders: Belgium received a record €75bn in bids for its 10-year bond, while Italy received €91bn for its 30-year debt sale.
Investors have queued up to buy eurozone sovereign debt early this year despite a powerful rally in the final two months of 2023 that pulled yields sharply lower. Bankers said the prospect of a series of interest rate cuts by the European Central Bank had encouraged big orders from fund managers betting on further gains. The ECB’s benchmark interest rate is expected to fall to 2.75 per cent by the end of 2024 from 4 per cent currently.
“The new year is normally very buoyant and that has only been exaggerated by this excess of demand due to the rate developments”, said Lee Cumbes, head of debt capital markets for Emea at Barclays, one of the banks that managed Spain’s bond issuance.
Cumbes added that the record number of orders for Spain’s debt also reflected investor confidence in the “outperformance” of Spain’s economy, which is expected to have grown 2.4 per cent in 2023.
Spain announced on Tuesday that it planned to issue about €55bn in net debt in 2024 — about €10bn less than in 2023 — due to stronger than expected economic performance.
Investors also said the strong demand could be due, in part, to the scale of the discount at Wednesday’s Spanish syndication — a type of sale where a group of banks is paid a fee to drum up demand from buyers.
The €15bn of new Spanish government debt sold at a yield of 3.26 per cent, according to bankers working on the deal, compared with an existing yield of 3.17 per cent.
The 9 basis-point gap “seems overly generous”, said Mike Riddell, a bond fund portfolio manager at Allianz Global Investors. “Perhaps . . . the issuers of these bonds are sufficiently worried about a potential lack of demand that they are willing to give away a few basis points in yield to ensure that they are able to issue in the required size.”
The eurozone’s ten-largest countries will issue a net €640bn of sovereign bonds this year, according to estimates from NatWest — an 18 per cent rise from 2023.