Smooth Spain Bond Sale, 'Sharp Correction' Possible: Strategist

Spain sold bonds at the top end of its targeted range on Thursday, with yields falling at the triple issue sale as investor sentiment toward struggling southern European economies improved.

Mariano Rajoy, Prime Minister of Spain.
Radolpho Saenz | AFP | Getty Images
Mariano Rajoy, Prime Minister of Spain.

The treasury sold 4.5 billion euros ($6.0 billion) in bonds due to mature in 2015, 2018 and 2041, at the top end of its target range of between 3.5 billion and 4.5 billion euros.

Spain sold 2.4 billion euros of a bond due October 31, 2015, at an average yield of 2.713 percent after selling for a yield of 3.358 percent at its previous outing on December 13. The bond was 2.0 times subscribed, compared to 4.8 times in December.

It also sold 1.6 billion euros in bonds due January 31, 2018, at an average yield of 3.770 percent compared to a previous yield of 3.988 percent when it was last auctioned Jan. 10. The bid-to-cover ratio was 2.3 after a ratio of 2.6 earlier in the month.

And it sold 512 million euros in bonds due July 30, 2041, last auctioned in May 2011. The yield was 5.696 percent and the bid-to-cover ratio 2.0.

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"For an increasing number of yield-hungry foreign investors,Spain is once again becoming something of a 'convergence trade' - an investment strategy that was almost unthinkable only a few months back," Nicholas Spiro, managing director at Spiro Sovereign Strategy told

"Today's well received auction, with yet a further drop in yields and decent demand, is part of a liquidity-driven rally that, for the time being, shows little sign of ebbing."

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The prices of Spanish bond auctions are becoming increasingly detached from the fundamentals, according to Spiro, which raises the chance of a "sharp correction" happening at some point in the future.

"The calming effects of the ECB's bond-buying program are suppressing the significant idiosyncratic risks in Spain centered around public finances and the banking sector."