(MENAFN- Qatar News Agency) Spain is set to kick off the most challenging 2013 funding program in the Eurozone next Thursday with a debt sale that is raising doubts about Madrid's ability to tackle its crisis without financial help.
The auction will refocus investor attention on Europe after a budget deal in the United States took center stage at the start of the year, lifting high-yielding assets. The US deal averted hefty fiscal tightening that could have thrown the world's largest economy into recession.
It has created a favorable global market environment so Spain, seen as one of the riskiest sovereigns in the euro zone, should attract strong demand for its debt on Thursday. However, its choice to start the new year with a new two-year benchmark signals Madrid is taking a prudent stance and is not yet willing to test the market with a longer-dated bond that would be more sensitive to foreign demand.
Two-year bonds are protected by the backstop provided by the European Central Bank which said last year it stood ready to buy short-dated government bonds if a country asks for a bailout from its Eurozone partners.
Analysts say that by taking the most cautious route available, Madrid is signaling a lack of confidence in its ability to avoid a bailout, according to Reuters. Spain said earlier it would sell new 2015 bonds and would reopen its 2018 and 2026 lines next week. Taps of old bonds are of less interest to market participants as they usually come in small size.
The last time Spain issued a 10-year benchmark bond was November 2011. With no 2023 bond on the maturity curve, pressure is increasing on Madrid to issue a new 10-year benchmark. If it were to encounter problems attracting demand for such an issue that could be a signal that Spain could no longer continue funding on the market without help.
While total euro zone issuance will fall by 6 percent this year due to austerity measures, Spanish bond supply will jump by about a quarter to 106 billion euros, according to late 2012 estimates from eight banks. The sheer amount of supply may be too much for markets to digest, analysts said.
The other euro zone issuers next week are Italy which like Spain is expected to benefit from the broadly improved appetite for high-yielding assets and safe havens Germany, Austria and the Netherlands. This week's sell-off in core Eurozone debt has lifted yields to levels attractive enough to ensure sales go smoothly, analysts said.
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