Spanish bonds gained after the Treasury met its target at a debt sale, while French costs declined at an auction, easing concern that the countries will struggle to finance their borrowings.
The Spanish Treasury sold 2.52 billion euros ($3.31 billion) of bonds, exceeding its maximum target. Still, Spain had to pay 4.037 percent to sell debt for three years, up from 2.617 percent at a March 1 sale.
The auction was the first long-term debt sale since Standard & Poor’s lowered the nation’s credit rating last week, leaving Spain three notches from junk status. The effect of the European Central Bank’s 1 trillion-euro three-year refinancing operation is also fading, leaving a clearer indication of demand.
“This is a proper, good, honest market now,” Peter Chatwell, a bond analyst at Credit Agricole SA in London, said in a telephone interview. “Expectations of big, blow-out auctions need to disappear. The yields are all sub-5 percent, that’s a comfortable level.”
The yield on Spain’s existing five-year benchmark declined 7 basis points to 4.7 percent at 12 p.m. in Madrid, and the yield on the benchmark 10-year bond fell 3 basis point to 5.82 percent. Spain also sold two five-year bonds at 4.752 percent and 4.96 percent.
France held its final auction before the nation chooses its next president in a final round of voting on May 6. The Treasury sold 3.32 billion euros of 10-year bonds at an average yield of 2.96 percent, down from 2.98 percent on April 5, as part of an auction of 7.43 billion euros of government debt. France’s 10- year bond yield fell 3 percent to 2.92 percent after the sale.
S&P cut Spain’s credit rating two levels to BBB+ from A on April 26, citing concerns that losses buried in the country’s banking system may overwhelm government efforts to shore up public finances. The government has embarked on a third attempt to clean up the banking industry since a real estate bubble burst in 2008, leaving them hobbled with bad loans and overvalued assets.
Spanish bonds were the worst-performing of 26 sovereign- debt indexes tracked by Bloomberg and the European Federation of Financial Analysts Societies in April, with losses of 1.8 percent. Italian securities were second worst, dropping 1.3 percent, after gaining 11 percent in the first quarter.
In February, the Spanish government increased the ratio of provisions to be set aside for land to 80 percent, while raising the ratio on unfinished developments to 65 percent and to 35 percent for other troubled assets including finished houses. The new provisioning rules cover about 180 billion euros of assets.
To contact the reporters on this story: Ben Sills in Madrid at firstname.lastname@example.org;
To contact the editors responsible for this story: Reed Landberg at email@example.com;