Spain to auction €6 to €7 billion in government bonds on Thursday, with index rebalancing and liquidity premium supporting demand

⑴ Spain will auction 7-year, 10-year, and 14-year government bonds on Thursday, with a total scale of about 5 to 6 billion euros. The current index dynamics are favorable and demand for Spanish government bond auctions has historically been strong. ⑵ This month, about 74 billion euros of eurozone government bonds have flowed out from major bond indices, slightly below the monthly average of 75 billion euros so far this year. At the end of the month, investors will reallocate the proceeds from these sales, providing support for auctions by various eurozone issuers. ⑶ Spanish auctions usually perform well, due to reasons such as the higher value of green shoe options amid current market volatility, the relatively insufficient liquidity in Spain’s secondary market making auctions an important channel to buy bonds, and Spanish government bonds serving as alternatives to similar-yielding bonds from other countries that are issued less frequently. ⑷ Demand for the 14-year variety is expected to come from scarcity in some parts of the market, and combined with the issuer’s ability to allocate bonds, this auction is likely to receive strong subscription.