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Borrowing costs drop in Spanish bond bonanza

Spain's long-term borrowing costs eased on Thursday in a bond sale, authorities said, a further sign of strengthening confidence in the country as it hopes to crawl out of recession.

Published: 5 September 2013 14:00 CEST

Borrowing costs drop in Spanish bond bonanza

The Madrid stock exchange building. Photo: Tomás Fano

The rate of return demanded by investors for the benchmark 10-year bond — a key measure of confidence in the eurozone's fourth-biggest economy — edged close to the record low level reached in 2010, the Bank of Spain said in a statement.

Investors snapped up more than €4 billion ($5.29 billion) in total, overshooting the Treasury's target of three or four billion euros, with demand for the bonds more than double the amount on offer.

The Treasury sold €2.41 billion of 10-year bonds, with the rate of return falling to 4.50 percent from 4.72 percent in the last comparable auction on July 18.

That brought the key rate closer to the record low of 4.14 percent reached in September 2010.

It also sold just under €1.6 billion worth of five-year bonds, with the rate falling to 3.48 percent from 3.56 percent in the last comparable sale on August 1.

Spain's soaring borrowing costs last year raised fears for the overall stability of the eurozone but the conservative government resisted speculation that it would seek a full euro zone bailout and financial tensions have since eased.

The pace of economic contraction eased in the second quarter of this year and the government and central bank now expect the country to return to economic growth in the current quarter.

The Madrid stock exchange rose slightly after Thursday's sale, with the IBEX-35 leading share index 0.39 percent higher in early afternoon trading.

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Swedish central bank sells bonds 'for climate reasons'

The Bulga Coal complex in New South Wales, Australia. Photo: Glencore

Deputy Governor Martin Flodén revealed on Wednesday that the bank had in April divested itself of bonds issued by the Canadian province of Alberta, and more recently sold bonds issued by the Australian states of Queensland and Western Australia.

“We will not invest in assets issued by issuers with a large climate footprint,” he explained in a speech at Örebro University on Wednesday. “Australia and Canada are countries that are not known for good climate work. Greenhouse gas emissions per capita are among the highest in the world.”

Flodén said the move followed a decision last year by the bank's executive board to take sustainability into account when making investment decisions.

“We can contribute to the climate work to some extent by giving consideration to sustainability aspects when investing in the foreign exchange reserves,” Flodén said. “We are now doing this by rejecting issuers who have a large climate footprint.”

Alberta's tar sands are some of the most polluting hydrocarbons in the world, while Queensland and Western Australia host some of the world's biggest coal mines.

In a statement emailed to reporters, Christine Myatt, spokeswoman for Alberta Premier Jason Kenney, insisted that Alberta had the “highest environmental standards in the world”.

“If the Swedish central bank is really concerned with making a difference on climate change they need to be investing more in ethical producers such as Alberta which have shown dramatic gains in reducing emissions,” she said.

The City of Örebro was the first Swedish city to commit to pull its funds out of fossil fuels, following the example of cities like San Francisco, Seattle and the Dutch town of Boxte.

In his speech, Flodén said he had doubts about taking a more active approach to sustainability, and investing foreign exchange reserves directly “in particularly climate-friendly assets, such as green bonds.”

Sweden's reserves, he explained, are currently invested solely in government bonds, something the bank was reluctant to change.

“This is partly to hold down financial risks, and partly because monetary policy, apart from determining the general interest-rate level, should disturb pricing on the financial markets as little as possible.”

This means that central banks can only have a limited role in pushing the world towards a greener economy, he said.

“This is entirely natural,” he said. “The important decisions on how climate change should be counteracted in Sweden are political and should be taken by the government and the parliament.”

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