Today Spain managed to sell €1.93bn in 3 and 6-month T-Bills, covering its aim of selling between 1 and 2 billion. The rates were as follows:
- 3-Month: 0.634%, previous 0.381%, 3M-Euribor: 0.727%.
- 6-Month: 1.58%, previous 0.836%, 6M-Euribor: 1.024%.
It is obvious that the 3-month yield settled bellow the Euribor funding cost, while the opposite happened for the 6 month yield. My own interpretation of the results, taking the latest Bank of Spain data into account, is that:
- Spanish banks are facing large fund outflows in the short-term. Although the outflows are manageable for the next few months, low excess liquidity is pushing them to ask for higher yields even in short-term T-Bills, in order to increase their profit spreads and earn enough interest to eventually pay the ECB (especially since outflows mean they will not even be earning the deposit facility rate).
- Excess liquidity will probably be drained in the next 6 months, forcing Spanish banks to seek funds in the money market. The Bill-Euribor spread probably represents Spanish banks 6 month funding cost spread (around 55bp), which elevates to 157bp according to the 1Y Bill spread.
It seems that this year’s August will be a (stronger) repetition of last year’s.
Economy View 
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24 Απριλίου, 2012 στις 20:33
toubiotis
The yields may be low but they still have doubled since the last auction on 27th of March. At the same time, French and Dutch bonds seem to be under pressure in the context of the last political developments in the corresponding countries. In the same vain, the yield of the Italian zero coupon bonds which mature in 2014 increased considerably by about 1%.