Wires

UPDATE 3-Record demand for Spain's benchmark bonds as government gets to work

Yoruk Bahceli

(Adds comment from Spain's Treasury)

LONDON, Jan 14 (Reuters) - Spain priced a new 10 billion euro, 10-year bond on Tuesday, attracting the largest order book for a euro zone bond sale, shortly after the country formed a new government and broke a lengthy political impasse.

The issue priced to yield 0.525% and attracted demand of more than 52 billion euros ($57.88 billion), making it the largest book by any issuer in euro history, according to Spain's Treasury.

Topping last January's syndicated 10-year bond, which gathered orders of more than 46.5 billion euros, the sale is the first syndication since Prime Minister Pedro Sanchez formed his cabinet over the weekend, ending months of political uncertainty.

"The investor community is taking a very calm view on political developments in Spain for the moment," ING senior rates strategist Antoine Bouvet said.

Socialist leader Sanchez was sworn in last Wednesday after winning a narrow parliamentary majority for his coalition government with the hard-left Unidas Podemos, and announced his cabinet over the weekend.

He has pledged that his government will focus on boosting Spain's economy, and said on Tuesday that he hoped to negotiate with the European Commission to ease Spain's deficit targets.

The final spread on the new bond was at 32 basis points above the mid-swap level, down from the initial guidance of 37 bps, lead managers said in a note seen by Reuters.

The strong demand for the new Spanish bond comes in a week that has seen a hefty level of new bond supply from across the euro zone, including Cyprus launching a syndication, while Italy held its first auction of the year.

"Last year at this point, we were still thinking about what extent we were to see some rate hikes later in the year. This is not the case anymore, so that is very friendly for fixed-income investors," a banker on the deal, who asked not to be identified, said of the high level of demand for recent sovereign bonds. ($1 = 0.8984 euros)

(Reporting by Yoruk Bahceli and Andrei Khalip, writing by Nathan Allen and Yoruk Bahceli; Editing Lisa Shumaker and Alison Williams)