Goodwill to all debt

Way back in October of 2008, we penned a piece based on our conversation with a worried Spanish architect and property developer. Despite his being a socialist sympathiser, his belief was that a right wing government would do wonders for the domestic investment climate in Spain. If, as seems probable, Tuesday's immense retail demand for Spanish letras carried over to today's auction of longer term obligaciones then our friend's assessment is proving itself to be prescient. This week's auctions are the last prior to the new PP government, with its historically strong mandate, taking office next Monday.

The Spanish Treasury this morning completed its 2011 bond issuance schedule - gross value of 93 billion euros - on a relatively optimistic note. The mishmash of 4-year, 9-year and 10-year paper, originally targeting 3.5 billion euros took in a tad over 6 billion. Yields, with bids-to-cover of 1.5 to 2.2, were such as to force down their approximate secondary market counterparts between 20 and 35 basis points.

The big beneficiary of this, and Tuesday's auction of letras, has been the crucial - at least in its role as a gauge of confidence - 2-year. Its yield, at 3.75 percent, is down 85 bps since Monday close.

Whether or not the move has legs to get the payout down to the mid- to low-3's characteristic of much of the past year is yet to be seen, but the results seem to suggest an overwhelming domestic vote of confidence for Mariano Rajoy.

Of course, we might be mistaken. FT Alphaville concludes that today's auction results are further proof of how bad it all is in the eurozone.

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