Spain May Dodge Bailout, Investors Offer Christmas Truce
Associate Editor, CNBC
Spain may not be fully out of the woods, but investors' favorable attitude towards the country suggests it is biding its time well and may get not need to request a bailout, analysts told CNBC.
A slew of bad data from unemployment - at 26.2 percent the highest level in the EU - and bad bank loans which reached a record high in October have not rattled investors' nerves significantly.
Tuesday's auction of 3 and 6-month treasury bills showed Spain was managing to rebuff any serious bailout talk, Valentijn Van Nieuwenhuijzen,Head of Strategy at ING Investment Management told CNBC.
Yields demanded by investors were low and the country sold more than it had targeted. Spain completed its 2012 funding target earlier this year.
"The constructive message from the ECB (European Central Bank) continues to filter through to the markets and we're seeing that institutional investors from Europe are bringing back some money to the market.The general message is that the premium in these peripheral markets is coming down," Van Nieuwenhuijzen added.
The ECB has said it will buy debt of struggling euro zone countries to bring down borrowing costs if needed,although such a move would require an official request from the state in question and the aid would come with conditions attached.
Nicholas Spiro, Managing Director at Spiro Sovereign Strategy, suggested Spain may even "get away" with not having to request an ECB-backed bond –buying program if sentiment remains favorable.
"The longer Spain is able to retain market access with relative ease, the more likely it becomes that investors start treating the ECB's "virtual" bond purchases as real intervention," he said in a note.
However, Spiro warned that Spain should not rest on its laurels as the prevailing view was still one of a country under pressure with yields continuing to rise.
"The fear among investors is that betting against Spain is tantamount to betting against the ECB. The market has bought into the fact that the ECB will do whatever it takes. Its [program is] virtual but it's worked wonders. The paradox is that the program has added to complacency, the policymakers are taking their feet off the pedals [and] it's detrimental in the long run." Spiro added.
He said Spain had no intention of asking for a bailout and the market would have to force PrimeMinister Mariano Rajoy's hand.
"There is novoluntary request on Spain's part. I don't see a crisis unless investors startto doubt the willingness and determination of the ECB. If that happens then allbets are off and it would be back to the drawing board," he added.
While he did not foresee a full-blown return to the crisis, with the ECB having done just enough to "keep the show on the road" and German Chancellor Angela Merkel not "upsetting the apple cart" at least until German elections are out of the way next year, Spiro said January and February would be critical months for Spain.