Spanish Bonds Fall 2nd Week on 10-Year Sale; Italian Debt Gains
February 11, 2012, 2:22 AM ESTBy Keith Jenkins and Lukanyo Mnyanda
Feb. 11 (Bloomberg) -- Spanish 10-year bonds fell for a second week after the nation sold additional securities through banks, as Greek officials struggled to reach accords needed to win a second rescue package.
Spain’s 10-year bond yield increased the most last week since the five days ended Jan. 6. Ten-year German yields dropped from the highest in almost two months after Finance Minister Wolfgang Schaeuble was said to tell lawmakers in Berlin that Greece is missing its debt-cutting targets. Italian 10-year bonds advanced for a fifth consecutive week, the longest run in more than five years.
“Spanish bonds sold off on 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 the underperformance.”
Spain’s 10-year yield climbed 32 basis points, or 0.32 percentage point, in the week to 5.31 percent at 4:10 p.m. London time yesterday, the biggest increase since the period ended Jan. 6. Two-year yields added 27 basis points to 2.85 percent.
Spain hired six banks to sell 4 billion euros ($5.3 billion) of the 10-year securities, which have been used as the nation’s benchmark since Jan. 20. The bonds were sold at a yield 300 basis points more than the swap rate. The sale increased the total size of the issue to 11.3 billion euros, according to data compiled by Bloomberg.
Second Bailout
German bunds rose yesterday after European finance ministers held back a rescue package for Greece.
The refusal of European finance ministers to approve the 130 billion-euro bailout reflected the region’s frustration with the country’s politicians and concern they will again backtrack on fiscal commitments.
Schaeuble said yesterday Greece’s pledges would leave the nation’s debt at as much as 136 percent of gross domestic product by 2020, according to two people who took part in the meeting. The target for Greece’s budget cuts and bond writedown was to reduce debt to 120 percent of GDP.
Germany’s 10-year bund yield dropped 11 basis points to 1.91 percent yesterday, after rising to 2.05 percent on Feb. 9, the highest since Dec. 13. The yield slid three basis points for the week.
Spanish and Italian bonds have rallied since the European Central Bank provided unlimited three-year cash to the region’s financial institutions in December to avoid a credit crunch.
Collateral
Spain’s 10-year yields have fallen about 1.5 percentage points from a euro-era high in November amid speculation banks are buying the securities to use as collateral with the ECB under the program, known as the longer-term refinancing operation. The central bank will offer another set of the loans on Feb. 28, with allocation 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 Feb. 8.
The extra yield investors demand to hold Spanish 10-year bonds instead of similar-maturity bunds widened 32 basis points in the week to 3.37 percentage points. Italian 10-year bonds yielded 3.68 percentage points more than similar-maturity bunds, from 3.77 percentage points on Feb. 3.
“We’re in a holding pattern waiting for announcement on the Greek side,” said Guy Mandy, a fixed-income strategist at Nomura International Plc in London. “The more cautious investors are sticking with core markets, and others that see the LTRO as quite bullish are still looking at peripherals.”
Italy is next week scheduled to sell 4 billion euros of 6 percent notes maturing in 2014. France also plans to auction bonds, while Greece and Portugal will sell bills.
--Editors: Mark McCord, Nicholas Reynolds
To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net; Keith Jenkins in London at kjenkins3@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
