Bloomberg News

Spain’s 5-Year Bonds Fall After Nation Sells Debt; Bunds Gain

September 01, 2011

Sept. 1 (Bloomberg) -- Spain’s five-year bonds fell for a fourth day as demand waned at an auction of the securities, deepening concern that European Central Bank purchases to stem the debt crisis won’t be enough to support the market.

German bunds advanced after a report showed European manufacturing shrank more than initially estimated, adding to signs the recovery is faltering. Investors bid for 1.76 times the amount of a new five-year Spanish benchmark on offer, down from a ratio of 2.85 times at an offering of similar-maturity debt in July. Spain raised 3.62 billion euros ($5.2 billion) from the sale, less than the maximum target of 4 billion euros.

“The Spanish auction wasn’t stellar,” said Eric Wand, a bond strategist at Lloyds Bank Corporate Markets in London. “We would have seen higher yield levels and lower demand without the safety net of the ECB. Risk seems to be a bit softer today and so there are still buyers of bunds.”

Five-year Spanish yields climbed three basis points to 4.29 percent as of 4 p.m. in London, after reaching 4.37 percent, the most since Aug. 8, when the ECB began buying Spanish bonds. The 3.25 percent security maturing in April 2016 fell 0.13, or 1.3 euros per 1,000-euro face amount, to 95.67. Ten-year yields were little changed at 5.05 percent, after rising to 5.12 percent, the highest since Aug. 9.

Bond Purchases

The ECB purchased Italian securities today, according to four people with knowledge of the transactions who asked not to be identified because the buying was confidential. A spokesman for the central bank declined to comment.

The ECB, which is barred legally from buying bonds directly from governments, has restrained Italian and Spanish borrowing costs for three weeks through purchases in the secondary market. Contagion from the debt crisis sent both nations’ 10-year yields to euro-era records almost a month ago.

Spain’s Treasury said it sold the five-year notes today at an average yield of 4.489 percent, less than the 4.871 percent rate in a July 7 auction of bonds maturing in 2016.

The yield difference, or spread, between Spanish 10-year bonds and similar-maturity German bunds expanded to 295 basis points, the most since Aug. 8.

“There’s very limited demand for new Spanish or Italian paper at the moment,” said Norbert Aul, a European interest- rates strategist at RBC Capital Markets in London. “Without the ECB support, any further supply puts pressure on the market.”

Even with the ECB purchases, Italian 10-year yields climbed two basis points to 5.15 percent. Five-year yields were also two basis points higher at 4.32 percent.

Weaker Manufacturing

A manufacturing gauge based on a survey of purchasing managers in the 17-nation euro region fell to 49 in August from 50.4 in July, London-based Markit Economics said today. That’s below an initial estimate of 49.7 published on Aug. 23. A reading below 50 indicates contraction.

Economists predict a report this week will show U.S. job growth slowed. Bunds advanced even as stocks swung between gains and losses after the U.S. Institute for Supply Management’s factory index defied economists’ forecasts for the first contraction in manufacturing in more than two years.

The extra yield investors demand to hold France’s 10-year debt over German securities expanded four basis points to 74 basis points, the widest since Aug. 10, as the nation sold bonds maturing in 2016, 2021 and 2041.

German 10-year yields fell five basis points to 2.17 percent after earlier climbing to 2.25 percent, the highest level since Aug. 25. Two-year yields dropped six basis points to 0.66 percent.

Irish Streak

Irish 10-year bonds rose for a 12th day, the longest streak since August 2005. Ten-year yields fell 10 basis points to 8.53 percent, the lowest since January. They slid 2.23 percentage points in August amid speculation the nation is better placed than others to grow its way out of debt.

Finance Minister Michael Noonan said today yields are still a “long way” from allowing Ireland to return to international markets. Though the yield trend is downward and “lots of real” money is buying the debt, risks remain, Noonan said in Dublin.

German government bonds have returned 5.2 percent this year, according to indexes compiled by the European Federation of Financial Analysts Societies and Bloomberg, while Treasuries gained 7.2 percent. Spain’s bonds have returned 5 percent, the indexes show.

--With assistance from Paul Dobson in London. Editors: Keith Campbell, Tim Farrand.

To contact the reporters on this story: Keith Jenkins in London at; Emma Charlton in London at

To contact the editor responsible for this story: Keith Campbell at

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