LONDON: The success of Spain's 50-year bond is the latest indication of how desperate investors are for any sort of yield and the growing belief that favourable monetary policy and low rates are here to stay.
The Iberian country this week printed a 3bn 3.45pculy 2066 bond, following France and Belgium who have both priced 50-year bonds in recent weeks, both also for 3bn.
While the popularity of the two core European countries at the ultra long-end of the curve were notable in themselves, Spain's ability to generate a 10bn plus book for this deal left some bankers in disbelief. One of them described it as a "capitulation trade".
"It illustrates that investors are desperate for any level of yield and are less concerned about any of the underlying statistics or even concerns around government," he said.
"If investors are buying 50-year Spain at 3.5pc they don't believe this underlying environment will change anytime soon, and are expecting a sort of 'Japanification' of the European economy."
Spain's political parties have been unable to form a government since a general election on December 20 left a fragmented parliament and no single group with enough support to produce a majority.
A fresh vote is scheduled for June 26.
UNCERTAINTY, WHO CARES?
Even though the political uncertainty has weighed on the bond curve to an extent, the European Central Bank's freshly increased 80bn-a-month bond purchases have limited the effect, keeping yields low across the eurozone sovereign bond market.
Barclays, BNP Paribas, CaixaBank, Citigroup, Santander and Societe Generale started marketing Spain's deal on Wednesday, with initial price thoughts of mid to high 250s over mid-swaps.
The expectation was that the yield on offer would trump concerns over the political backdrop - and so it proved.
The issuer opened books at 253bp area over swaps and then set the spread at 250bp over mid-swaps on a book of over 10bn, including 1.2bn of joint lead manager interest.
With insurance and pension funds in particular struggling to meet their targets for returns - typically around 1.25pc to 1.50pc - long-dated paper has become increasingly popular.
Real money accounts led the buying. Fund managers took 38.3pc, pension and insurance 30.5pc, hedge funds 13.1pc, banks 12.3pc, central banks and official institutions 2.2pc and others 3.6pc.
Germany/Austria/Switzerland 26.6pc, UK/Ireland 22.6pc, Spain 16.7pc, US/Canada 16.4pc, France/Italy 6pc, Nordics 3.6pc, other Europe 6.8pc and Asia and Middle East 1.3pc.
OUTSIDE QE
The likes of Italy, Belgium, Austria, Ireland and Spain have been swamped with demand this year when they brought 30-year benchmarks to market.
However, those deals fall within the ECB's criteria for purchases - as it buys bonds with tenors from two to 30-years.
A 50-year benchmark does not.
And while Belgium and France may have had success in the ultra-long sector, but Spain was more untested in the space.
"There's strong demand for ultra-long-dated products from investors looking to match pension liabilities but, until now, they have tended to focus on core European product," said Alex Barnes, head of SSA syndicate at Citigroup.
"I think it's a very different exercise in the periphery which makes this a really impressive achievement, not only in terms of the result but also the sheer number of investors involved."
There were 302 accounts involved in the deal. Spain has issued a 50-year bond before, a 1bn 4pc October 2064 bond in September 2014, though it was a smaller trade described by one banker as a "semi-private placement".
That bond was bid at 3pc pre-announcement, according to Thomson Reuters data.
LONGER AND LONGER
Spain's announcement comes ahead of Italy.
The country's treasury wants to raise at least 2bn in a 50-year sale in the next few weeks, two market sources told Reuters this week. Some speculated that Austria, which has traditionally been keen on duration, could also raise ultra-long dated debt.
But bankers agreed that the best candidates were still Italy and Spain - two issuers that have large programmes and are likely to provide the sort of liquidity the market wants.
Ahead of this week's deal, Spain's Treasury had already sold almost 43pc of its medium- and long-term debt issuance target for this year.
Spain is rated Baa2/BBB+/BBB+/AL.
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