Spain’s bonds led gains among the government securities of Europe’s most indebted nations after the country raised more than its maximum target at a bill sale.
Italian and Portuguese securities also advanced. Germany’s bonds dropped as an industry report showed investor confidence in Europe’s largest economy unexpectedly improved in April, damping demand for safer investments. Bunds also fell after European consumer prices rose faster than earlier estimated. The extra yield investors demand to hold Spanish 10-year bonds instead of bunds shrank for the first time in three days.
“There may have been some fear out there in the market that Spain could have had difficulty and that wasn’t the case,” said Padhraic Garvey, head of developed market debt at ING Bank NV in Amsterdam, referring to the Spanish auction. “The bills got done. The spreads have come in a bit but they are still very wide.”
Spain’s 10-year bond yield declined 18 basis points, or 0.18 percentage point, to 5.89 percent at 4:31 p.m. London time after falling as much as 19 basis points, the most since Jan. 27. The 5.85 percent security due in January 2022 rose 1.33, or 13.30 euros per 1,000-euro (1,315) face amount to 99.715.
The spread over bunds shrank 22 basis points to 413 basis points after expanding to 444 basis points on April 16, the widest since Nov. 28.
Spain sold 3.18 billion euros of debt, compared with the Treasury’s maximum target of 3 billion euros. The country auctioned 12-month bills at 2.623 percent, up from 1.418 percent at the previous sale on March 20, the Bank of Spain said in Madrid. The Treasury also sold 18-month bills at 3.11 percent, versus 1.711 percent last month.
Volatility in Spanish securities was the highest among euro-area debt markets, according to measures of 10-year bonds, two- and 10-year yield spreads and credit-default swaps compiled by Bloomberg.
Italy’s 10-year yield declined 12 basis points to 5.48 percent, with the spread over German bunds narrowing 15 basis points to 372 basis points. Portugal’s 10-year yield fell 18 basis points to 12.5 percent.
The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, increased to 23.4 from 22.3 in March. That’s the highest reading since June 2010. Economists forecast a drop to 19, according to a Bloomberg News survey.
“We have seen some sour sentiment in the previous days and now we are seeing some calm” in financial markets, said Niels From, chief analyst at Nordea Bank AB (NDA) in Copenhagen. “There is some hope that the German economy is remaining strong.”
Germany’s 10-year bund yield increased four basis points to 1.76 percent, and the two-year note yield climbed two basis points to 0.15 percent.
The inflation rate in the 17-nation euro region held at 2.7 percent in March, the European Union’s statistics office said in an e-mailed statement. That’s higher than the estimate of 2.6 percent published on March 30. The European Central Bank aims to keep annual gains in consumer prices just below 2 percent.
Inflation was “a little higher than expected so that should prompt market observers to become a little bit more cautious on prospective easing measures from the ECB,” said Marius Daheim, a senior fixed-income strategist at Bayerische Landesbank in Munich. “The ZEW, with an increase, was a little bit of a surprise to the upside, pressuring bunds.”
Germany is scheduled to sell 5 billion euros of two-year notes tomorrow. Spain plans to auction 2.5 billion euros of bonds on April 19, and France will offer two-, three- and five- year notes and inflation-linked debt on the same day.
The two-year German yield, which is consolidating near the April 10 record low of 0.091 percent, will encounter resistance at its April 12 high of 0.163 percent and its 50-day moving average currently at 0.213 percent, according to data compiled by Bloomberg.
German bonds returned 1.1 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish securities dropped 2.5 percent, while Italy’s gained 8.7 percent.
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