Success in Action (Or Auction)

Thursday morning, Italy and Spain held their first debt auctions of 2012. These events have been very closely watched of late, due to peripheral Europe’s ongoing issues. Prevailing sentiment among many investors and pundits seems to expect disastrous results. Yet that isn’t what happened Thursday.

Spain took advantage of strong investor demand, selling €10 billion of debt in total, about twice the targeted amount. Investors bid for roughly €18 billion of debt, further illustrating strong demand. The nation sold three tranches of bonds: Three-year debt at average yields of 3.384%, four-year bonds at 3.748% and five-year debt at 3.912%. All three reflect marked declines from the previous auctions, with three-year rates leading the way—falling from 5.187% in December’s auction.

Italy’s auctions showed similar strength. The country sold the full allotment of €12 billion in debt, with the majority being 12-month T-bills. The results? An average 12-month yield of 2.735%—more than three full percentage points lower than December’s 5.952%.

In the secondary market, benchmark 10-year bond rates also fell. As of this writing, Italian yields are down roughly 40 basis points to 6.56% and Spanish 10-year rates are dipping roughly 10 basis points to 5.18%.

Obviously, this is just one auction, and there are quite a few more ahead in 2012. But 2011’sauctions didn’t end terribly, and the year’s off to a good start for Italian and Spanish debt refinancing—results quite detached from widespread fiscal fears.