Tuesday, January 18, 2011

Spanish Issuance Policy & Cognitive Dissonance

While the Portugal was a stunning success last week, there are somewhat less fanfares around Spanish bond issuance, but media reports do not leave bad impression either. Probably the ECB bond purchases, combined with others in apparent prosperity, dent the outright optimism, but the cream lickers at efficient frontiers are not burdened with doubtful credit? Nevertheless, read, for example, CNBC.com today:
Spain's Treasury issued 5.5 billion euros ($7.34 billion) of 12- and 18-month T-bills on Tuesday, in the middle of the targeted range and with both issues at a lower yield than the previous auction in December.

The debt sale was the first time this year the Treasury has taken its short-term paper to the markets.

An auction of 5-year bonds Jan. 13 went better than expected, helping boost sentiment toward the euro zone's peripheral economies. ...
However, the rate strategists at Nomura are posing some questions about Spanish issuance policy:
One of the key innovations the Spanish Treasury introduced for 2011 is its monthly publication of the list of references to be auctioned, rather than its previous quarterly updates. This was done with an aim “to provide the Treasury with greater flexibility when it comes to adapting its issuance to market preferences in a very volatile environment” (see link). Yesterday’s decision to cancel the Oct 20 and Jan 24 taps, which were announced last Friday in favour of syndication of a new 10yr benchmark perhaps brings into question the transparency. The syndication proceeded well, with the Treasury able to place a larger than expected €6bn. However, pricing terms were very cheap (taking the market lower) and if the experience of issuers in 2010 is any guide, this is not necessarily a great set-up for digestion. Meanwhile, such a rapid about-face suggests either an element of desperation or a communication policy gone badly wrong.
Add to the fundamental background the QOTD: On the Real Economy, German ZEW, Shanghai Composite, and look at bullish break-out of European bastard child:

Some cognitive dissonance may arise ...

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