Bloomberg News

Spanish Yields Rise Most in 5 Weeks Before Sale; Bunds Decline

February 09, 2012

Feb. 8 (Bloomberg) -- Spanish bonds fell, pushing the five- year note yield up the most in almost five weeks, as the country was said to hire banks for a debt sale taking place today.

German bond yields touched a two-week high amid speculation Greek Prime Minister Lucas Papademos is close to obtaining a bailout deal, damping demand for the region’s safest assets. Spain hired six banks to sell additional 5.85 percent bonds due in January 2022, according to a banker involved in the transaction. The security has been used as Spain’s 10-year benchmark since Jan. 20.

“Spanish bonds sold off on talk of more supply in the shape of a syndicated 10-year deal,” said Eric Wand, a fixed- income strategist at Lloyds Bank Corporate Markets in London. “That’s the reason for today’s underperformance in light of the solid run Spain has had of late.”

The Spanish five-year note yield rose 12 basis points to 3.84 percent at 4:45 p.m. London time. It climbed as much as 19 basis points, or 0.19 percentage point, to 3.90 percent, the biggest increase since Jan. 5. The 4.25 percent securities maturing in October 2016 fell 0.53, or 5.30 euros per 1,000-euro ($1,324) face amount, to 101.74.

The 10-year bond yield climbed 15 basis points to 5.22 percent, pushing the yield difference, or spread, versus benchmark German 10-year bunds 13 basis points wider to 3.24 percentage points.

Unlimited Cash

Spain’s bonds will be priced to yield 300 basis points more than the benchmark mid-swap rate, a banker involved in the transaction said.

Spanish and Italian bonds have rallied since the European Central Bank offered unlimited three-year cash to the region’s banks in December to avoid a credit crunch. The securities rose amid speculation banks are buying them to use as collateral with the ECB under the program, known as the longer-term refinancing operation. The central bank will offer a second round of the loans on Feb. 28, with allotment a day later.

The more measures Spain’s government implements to ensure budget stability, the easier it is for the ECB to provide support, Prime Minister Mariano Rajoy said today.

The ECB will hold its key interest rate at a record low 1 percent tomorrow, according to the median estimate of 57 economists in a Bloomberg News survey. Two of the analysts forecast a quarter-point rate reduction.

Italy’s 10-year yield was little changed at 5.59 percent, leaving the extra yield investors demand to hold the securities instead of German bunds at 3.61 percentage points.

Greek Deal

German bunds dropped for a second day after the Greek premier held a meeting with the ECB and the International Monetary Fund yesterday to put the final touches on terms needed for a 130 billion-euro rescue package. Bunds also declined as Germany auctioned 3.29 billion euros of five-year notes.

“The market thinks that a deal on Greece is imminent and that’s enough to support risk appetite,” said Richard McGuire, a senior fixed-income strategist at Rabobank International in London. “Bunds are continuing their bearish tone.”

The 10-year bund yield added one basis point to 1.98 percent, after reaching 2.01 percent, the highest since Jan. 25.

Papademos is meeting leaders of the political parties supporting his government today in Athens after delaying the talks for a second time in as many days while Greek officials and international creditors discussed the terms of an agreement. The government, facing a 14.5 billion-euro bond payment on March 20, is struggling to arrange financing to avert a collapse of the economy.

German five-year note yields were little changed at 0.92 percent as the nation sold 0.75 percent securities due in February 2017 at an average yield of 0.91 percent. Investors bid for 1.8 times the amount of debt allotted, compared with a bid- to-cover of 2.8 at the previous auction on Jan. 11.

Germany’s bonds have handed investors a loss of 0.7 percent this year, according to indexes compiled by the European Federation of Financial Analysts Societies and Bloomberg. Bunds returned 9.7 percent last year as the European debt crisis stoked demand for safer assets.

--With assistance from Emma Charlton in London, Esteban Duarte in Madrid, and Marcus Bensasson, Natalie Weeks and Maria Petrakis in Athens. Editors: Paul Dobson, Nicholas Reynolds

To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at; Keith Jenkins in London at

To contact the editor responsible for this story: Daniel Tilles at

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