Spain's Surprising Bond Sale (SNF, EWP)

If you have followed all the news about sovereign debt risks in the PIIGS (Portugal, Italy, Ireland, Greece, and Spain), you would think that perhaps the Euro was about to implode overnight or that suddenly debt holders were going to have to figure out how to repossess a country.  Yesterday, there was talk of a 15-year debt maturity coming out of Spain, and the deal has priced.  It looks like the demand was ample and the spread is not indicative at all that Spain is about to slide off into the Atlantic Ocean.

Spain sold a 5 billion EURO bond which matures July 30, 2025.   The spread was put at 85 basis points over swap rates, which is not exactly a distressed government sale indicative of any imminent collapse.  The coupon was 4.65% and the pricing was just under Par.  The debt ratings are still Triple-A at Moody’s and Fitch, while S&P has a AA+ rating.

We do not have the formal bid to cover ratio yet, but we have heard that the deal was more than twice-subscribed.  The Ibero-America Fund, Inc. (NYSE: SNF) is up 0.8% at $6.39 and the iShares MSCI Spain Index (NYSE: EWP) is down 0.3% at $41.18.

We have some serious concerns about the PIIGS, or at least part of them.  The issue is that it doesn’t look like at least Spain is at risk of following any of the fellow PIIGS off the cliff.

JON C. OGG
FEBRUARY 17, 2010