Spanish bonds fell, pushing 10-year yields to 6 percent, amid speculation budget cuts and European Central Bank measures are failing to stem the region’s sovereign debt crisis.
Spanish securities dropped for a second week as data showed the country’s banks increased borrowing from the ECB by almost 50 percent in March. Italian bonds declined for the first time in three days. Germany’s bunds rallied as reports showed the country’s inflation slowed in March and China’s economic growth cooled, spurring demand for Europe’s safest securities.
“Spain’s significant budget measures have proved unable to convince the market that the new government has the fiscal situation fully under control,” said Norbert Aul, a fixed- income strategist at Royal Bank of Canada in London. “The market reaction to the more-or-less-expected borrowing increase only shows the nervousness in the current environment. Spain should remain under pressure.”
The Spanish 10-year yield rose 16 basis points, or 0.16 percentage point, to 5.98 percent at 4:36 p.m. London time after reaching 6 percent. The yield has increased 22 basis points after jumping 40 basis points last week. The 5.85 percent bond due in January 2022 dropped 1.375, or 13.75 euros per 1,000-euro ($1,308) face amount, to 99.06.
Borrowings by Spanish banks from the ECB climbed to a record last month after the region’s central bank boosted its support for the region’s lenders by offering unlimited three- year loans. Average net borrowings by Spanish banks climbed to 227.6 billion euros, the Bank of Spain said.
Spanish 10-year yields are getting closer to the 7 percent level that triggered the bailouts of Greece, Ireland and Portugal, as Prime Minister Mariano Rajoy said the country’s future is on the line.
Volatility on Spanish bonds was the highest in euro-area markets today followed by French securities, according to measures of 10-year bonds, two- and 10-year yield spreads and credit-default swaps. The change in Spanish 10-year yields was 1.9 times the 90-day average.
The cost of insuring against a Spanish default surged to a record. Credit-default swaps on Spain rose 17 basis points to an all-time high of 498, according to CMA prices.
Italy’s 10-year yield climbed 12 basis points to 5.52 percent, increasing the extra yield investors demand to hold the securities instead of similar-maturity bunds by 18 basis points to 379 basis points.
German bunds advanced as the decline in the debt securities of peripheral nations increased investor appetite for havens.
German inflation, calculated using a harmonized European Union method, slowed to 2.3 percent in March from 2.5 percent a month earlier, matching a preliminary estimate, the Federal Statistics Office in Wiesbaden said. China’s gross domestic product expanded 8.1 percent in the first quarter from a year earlier, the least in almost three years, the National Bureau of Statistics said in Beijing.
“We have seen some recent disappointments in the macro data, so adding all this together the balance of risk is more to some risk-off sentiment,” said Niels From, chief analyst at Nordea Bank AB (NDA) in Copenhagen. “We could see a bit more sour sentiment in the market. There’s a risk that bund yields could break lower.”
The 10-year bund yield fell six basis points to 1.73 percent. The benchmark rate slid to 1.639 percent on April 10, within a basis point of the record 1.636 percent set Sept. 23.
The two-year yield declined one basis point to 0.13 percent after falling to a record 0.091 percent on April 10.
German bunds returned 0.8 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Italian bonds gained 9.5 percent, and Spanish securities lost 1.5 percent, the indexes show.
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