Bloomberg News

German Bonds Fall Third Day After Spanish, French Debt Auctions

March 15, 2012

German government notes fell for a third day as demand for Spanish notes increased at an auction, sapping investor appetite for the euro-region’s safest assets.

Germany’s 30-year yields rose to the highest this year. Spain sold 3 billion euros ($3.9 billion) of securities due between 2015 and 2018 today and France auctioned about 10 billion euros of debt. The Spanish sale was the first since Prime Minister Mariano Rajoy raised the country’s 2012 deficit target on March 2.

Today’s Spanish sale “was a test for demand, to check if it was still solid despite worries about the country’s fiscal consolidation,” said Annalisa Piazza, a fixed-income analyst at Newedge Group in London. “It was still a good result.”

The German five-year yield climbed four basis points, or 0.04 percentage point, to 0.97 percent at 4 p.m. London time, after reaching 0.98 percent, the highest since Feb. 9. The 0.75 percent bond due February 2017 dropped 0.180, or 1.80 euros per 1,000-euro face amount, to 99.950.

The 30-year (GDBRG30) yield was little changed at 2.63 percent after earlier reaching 2.68 percent, the highest level since Dec. 12. Ten-year yields were also little changed, at 1.96 percent.

Spain sold 976 million euros of 3.25 percent notes due April 2016 at an average yield of 3.37 percent. The bid-to-cover ratio was 4.13, compared with 2.21 when the notes were sold in January, the Bank of Spain said in Madrid today. It also auctioned 2015 and 2018 securities. The maximum target for all three auctions was 3.5 billion euros.

Spanish Deficit

European finance chiefs told Spain earlier this week to prune an additional 0.5 percent of gross domestic product out of the 2012 budget after Rajoy set a deficit goal of 5.8 percent. Such a target “is dead,” Luxembourg Prime Minister Jean-Claude Juncker said after chairing a meeting of euro-area finance ministers in Brussels.

Spain sold less than the maximum because it “has already funded about 40 percent of its requirement this year and might hold for benchmark auctions, which are cheaper, to sell more,” Piazza said.

France sold 3.26 billion euros of benchmark five-year debt at an average yield of 1.78 percent. The borrowing cost for the 1.75 percent note due in February 2017 was less than the yield of 1.93 percent at the previous sale of the securities on Feb. 16. In addition to bonds due in 2014 and 2015, the nation also auctioned 1.6 billion euros of inflation-linked debt maturing between 2019 and 2027.

Spreads Widen

Yields on Spanish two-year notes four basis points lower at 2.41 percent after sliding to 2.38 percent.

French government bonds fell, pushing the 10-year yield up four basis points to 2.97 percent. The nation’s two-year yield rose two basis points to 0.54 percent.

The extra yield, or spread, investors demand to hold Spanish 10-year debt rather than similar-maturity Italian securities rose to as much as 33 basis points, the most since July 26 based on closing prices.

The Italian securities yielded 202 basis points more than their Spanish counterparts on Dec. 30. The two-year spread is 44 basis points.

German bonds have lost 0.7 percent so far this year after returning 9.7 percent in 2011, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish securities have gained 2 percent and French debt 1.9 percent, the data show.

Bund Futures

The extra yield investors receive from holding U.S. 10-year notes (USGG10YR) instead of similar-maturity German debt increased to as much as 39 basis points, before paring to 33 basis points. That’s the most since Feb. 21, 2011, based on closing price data compiled by Bloomberg.

German bund futures may fall as much as 0.9 percent after breaking below a key area of support, Commerzbank AG said, citing trading patterns.

The contracts are poised to decline toward 135.20, the Feb. 9 low, after breaching the 11-month uptrend at 137.37 and the 55-day moving average at 137.23, Axel Rudolph, a senior technical analyst at the bank in London, said in a phone interview.

The 10-year bund contract expiring in June fell 0.2 percent to 136.76 after dropping to 136.26, the lowest level since Feb. 22, according to data compiled by Bloomberg.

To contact the reporters on this story: David Goodman in London at dgoodman28@bloomberg.net; Keith Jenkins in London at kjenkins3@bloomberg.net

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


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