Spain's Risk Premium falls and Stock Market rises - Sign of improvement?

Spain’s risk premium on Tuesday fell below 300 basis points for the first time since February 2012, while the Treasury managed to sell three-month bills at the lowest yield on record as market conditions improved considerably.

One of the detonators of the improvement seems to be a shift in attitude on the part of the European Commission away from its obsession with austerity. EC President José Manuel Barroso on Monday said: "While I think this [austerity] policy is fundamentally right, I think it has reached its limits."

With the euro zone in recession, expectations have also been building for a rate cut by the European Central Bank (ECB) at next week’s monetary policy meeting.

Expectations that the European Commission will give Spain two more years to bring its deficit back within the EU ceiling of three percent of GDP have also boosted sentiment toward the country.

In late afternoon trade, the yield on the Spanish benchmark 10-year government bond was at 4.247 percent, the first time it has dropped below 4.3 percent since November 2010. That helped push the risk premium to just below 300 basis points. Improved sentiment was also reflected in the stock markets. The Spanish blue-chip Ibex 35 index was up 2.8 percent by late afternoon.

The debt-management arm of the Economy Ministry sold 855 million euros in three-month bills at a cut-off rate of 0.150 percent, well down on the 0.340 percent offered at the previous tender of debt with the same maturity held on March 19. Tuesday’s sale saw the lowest rate paid for three-month bills since they were first issued in 1991. Demand amounted to 3.212 billion euros.

The Treasury placed a further 2.156 billion euros in nine-month bills at a marginal rate of 0.825 percent, down from 1.060 percent in March. The bid-to-cover ratio was 2.37 times the amount sold. The total sold in the two tranches of the auction was 3.01 billion, slightly above the target of three billion.

“The estimated maximum amount was placed at reduced rates and the bid-to-cover ratios were very good, with all of this confirming the change in perception of Spain,” Reuters quoted Cortal Consors’ director of strategy, Estefanía Ponte, as saying.

El Pais

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Also in our papers on Tuesday it was reported that Spain has had a population drop due to the recession, first time for many years, those who came to Spain some years ago are leaving because of no work,  no money, no benefits.  And the younger people are leaving to find work in other countries.

Suppose in more ways then one it has to help balance the books a bit.

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and unemployment has just hit 27%...

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I think that article by the op doesn't haven't any real meaning on the average Spaniard, as has been said, Rajoy now has the unenviable news of 27% unemployment and 57% youth unemployment, staggering!
in fact the figures are higher because they don't take into account those who have exhausted their unemployment benefit rights but are still unemployed.
Small businesses make up the majority of companies in Spain, yet lending to them has all but dried up so this has a knock on effect.
As for the Spanish stock market being higher, year to date returns for the Spanish Ibex are 2.6%, hardly impressive compared to 8.5% for the UK FTSE100.

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