Strong demand for Spain’s €5bn inflation-linked bond

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Spain has issued its largest inflation-linked syndicated bond since 2014, underlining investors’ continued appetite for Eurozone assets in the aftermath of the French presidential election first round.
The €5bn, 10-year issue was more than three times oversubscribed, according to bankers. It was priced with a 0.65 per cent annual coupon.

Spain also benefited from investors’ continued demand for securities which protect them from rising consumer prices. Its debt-raising follows on from Ireland’s inaugural inflation-linked bond issue last week.

Inflation-linked debt partially protects bondholders from rising consumer prices which erode the value of fixed returns. Demand for inflation-linked securities suggests that investors are anticipating rising inflationary pressures.

In December, a survey by rating agency Fitch Ratings found that three times as many European bond investors rated inflation as a high risk compared to six months earlier.

Spanish inflation hit a four-year high in February, reaching an annual rate of 3 per cent, but pulled back to 2.1 per cent the following month according to early estimates, mirroring the wider Eurozone trend.

Wednesday’s issue was Spain’s third syndication of 2017; it has so far raised €58bn of the €133bn medium and longterm funding it needs this year.

It used six banks as lead managers: HSBC, BNP Paribas, Citi, CaixaBank, Morgan Stanley and Société Générale.

PJ Bye, HSBC’s global head of sovereign debt syndicate, said demand for the bond was “exceptionally strong”, something which had boosted the amount Spain was able to raise.

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