Spain's Treasury, facing a volatile market as it looks for ways to keep its debt costs under control, cancelled a bond auction planned for Thursday and said it would issue a syndicated bond over 10 years.
Belgium is also seeking an opportunity to place debt with a syndicate of banks and Portugal also plans one for the first quarter, as fiscally stretched sovereign issuers elsewhere in Europe also seek to cut spiralling financing costs.
Risks premiums on Spanish and Portuguese debt widened and one analyst said Spain's announcement could add a new layer of uncertainty to an already tense debt market.
"Some weeks ago this possibility was being speculated about. But, far from calming markets it could be interpreted as an attempt by the Treasury to avoid more uncertainty and assure financing at a fixed rate," said an economist at IG Markets, Soledad Pellon.
The Treasury said the new bond would be a similar volume as last year's syndicated issue, between €4 billion and €5 billion.
Spain sold €5 billion in its 10-year syndicated bond issue on Thursday, which was priced at 53 to 56 basis points over mid-swaps.
The Treasury is expected to pay a much higher price for the new issue with the euro zone debt crisis having sent premiums sky-high on fears Spain might be forced to apply for a Ireland-style bailout.
The premiums investors demand to hold Spanish 10-year bonos over German Bunds stood at 239 basis points, up from around 233 bps at the open today and a long way from pre-crisis levels of below 70 bps in April 2010.
The syndicated bond will replace a planned issue of existing 10 and 15-year bonds due on Thursday, the Treasury said.
BBVA, Barclays, BNP Paribas, Citi, Santander and SGCIB are lead managers.