Bloomberg News

Spanish Bonds Drop on Euro Crisis Concern; German Bunds Advance

December 01, 2011

Nov. 30 (Bloomberg) -- Spanish government bonds fell for the first time in three days on concern lawmakers’ efforts to counter the region’s debt crisis are falling short.

Italian 10-year bonds also slid after euro-area finance ministers said more work was needed to enhance the role of the International Monetary Fund in fighting Europe’s debt crisis. German bonds snapped a six-day drop after Standard & Poor’s cut the ratings of lenders including Bank of America Corp. and Goldman Sachs Group Inc. Portuguese yields increased to euro-era records. The European Central Bank bought Irish and Italian debt, said people with knowledge of the trades.

“There were a lot of points that were rather disappointing” from the ministers’ meeting yesterday, said David Schnautz, a fixed-income strategist at Commerzbank AG in London. “It could be the disappointment is feeding in” to the government bond markets, he said.

The yield on Spanish 10-year bonds rose seven basis points, or 0.07 percentage point, to 6.46 percent at 10:35 a.m. London time. The 5.5 percent securities maturing in April 2021 fell 0.465, or 4.65 euros per 1,000-euro ($1,327) face amount, to 93.32.

The yield on Italian bonds of similar maturity rose five basis points to 7.29 percent. Benchmark German bunds rose, pushing the yield down three basis points to 2.30 percent.

The euro fell 0.2 percent to $1.3287 and the Stoxx Europe 600 Index of equities slid 0.4 percent.

Breakeven Rate

Euro-area finance ministers conceded their effort to expand their bailout fund missed the target and said they would seek a greater role for the IMF in fighting the crisis after yields in the region’s high-deficit nations surged this month. The rate on five-year Italian notes has climbed 190 basis points in November, the biggest jump since Bloomberg began collecting the data in 1993.

The euro-area ministers will be joined today by their counterparts from the rest of the 27-nation European Union and will seek agreement on how to temporarily guarantee banks’ bond issuance in order to improve funding conditions for lending.

The European Central bank bought Italian bonds today, according to four people with knowledge of the trades, who declined to be identified because they’re private. It also bought Irish debt, said two of the people. An ECB spokesman in Frankfurt declined to comment.

Irish five-year note yields were little changed at 9.44 percent after climbing about 1.63 percentage points this month.

Euro-Area Inflation

German 10-year yields also fell from near the highest in three months after S&P lowered credit ratings on banks as part of criteria changes started three years ago.

Euro-area inflation held at a three-year high of 3 percent in October, the EU’s statistics office in Luxembourg said.

Germany’s 10-year breakeven rate, a measure of inflation expectations derived from the difference in yield between conventional and index-linked securities, was at 141 basis points, after narrowing to 128 basis points on Nov. 24, a record low according to Bloomberg data.

Other reports today showed German retail sales rose more than economists estimated in October, and German unemployment fell a seasonally adjusted 20,000 to 2.91 million in November, according to the Nuremberg-based Federal Labor Agency today.

Portuguese 10-year bond yields jumped 46 basis points to 14.06 percent, the most in the euro era. Fitch Ratings cut the country’s credit ranking to non-investment grade on Nov. 24, leading to its removal from a Barclays Plc index of European debt at the end of this month.

German government bonds have returned 6.1 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Italian bonds have lost 11 percent and Spanish debt has fallen 1.1 percent.

--Editors: Mark McCord, Matthew Brown

To contact the reporter on this story: Paul Dobson in London at pdobson2@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net


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