Spanish bonds rose for the first time in four days after the government said it would take over Bankia SA (BKIA) and was prepared to inject public funds into the banking group, bolstering investor confidence.
German bunds fell, snapping a two-day gain, as the rally in Spanish securities and the euro, damped demand for the region’s safest assets. Greek bonds dropped for an eighth day as the nation’s political leaders struggled to form a new government, raising the possibility that another election will have to be held as early as next month. Italian bonds advanced.
“The late news yesterday that Spain is going to part- nationalize Bankia is the major driver,” said Eric Wand, a fixed-income strategist at Lloyds Banking Group Plc in London. “It’s a step in the right direction and I think the market likes it. We’ve seen a decent selloff in the last couple of days and people are seizing on that to re-price”
Spain’s 10-year bond yield fell 10 basis points, or 0.1 percentage point, to 5.98 percent at 4:35 p.m. London time after rising 34 basis points over the previous three days. The 5.85 percent security due in January 2022 rose 0.685, or 6.85 euros per 1,000-euro face amount, to 99.015.
The Spanish government said it will take a 45 percent controlling stake in Bankia as it aims to help shore up the financial system. The country’s bank bailout fund will convert its 4.5 billion euros of preferred shares in Bankia’s parent, Banco Financiero y de Ahorros, into voting shares, the Economy Ministry said in a statement yesterday.
Bonds in other so-called peripheral nations also advanced. Italian 10-year yields dropped eight basis points to 5.41 percent, and Portugal’s 10-year rate declined 42 basis points to 11.12 percent
The euro strengthened 0.3 percent to $1.2961, snapping an eight-day decline.
Germany’s 10-year yield climbed three basis points to 1.55 percent, and the 30-year yield increased one basis point to 2.24 percent. German two-, five-, 10- and 30-year yields all dropped to records yesterday amid the political instability in Greece.
The yield on the Greek bond due February 2023 climbed 49 basis points to 24.19 percent. The yield has jumped almost four percentage points since the elections on May 6.
Greece’s Evangelos Venizelos, the socialist Pasok leader and former finance minister, began a last-ditch effort to form a coalition government today that would avert a new election and keep the country in the euro.
German debt returned 2.2 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish securities dropped 2.3 percent, the indexes show.
The difference between German two- and 10-year yields widened two basis points to 147 basis points after shrinking to 145 basis points yesterday, the least since November, based on closing prices.
Volatility on Portuguese bonds was the highest in euro-area markets today followed by Austrian securities, according to measures of 10-year bonds, the spread between two and 10-year securities, and credit-default swaps. The change in the Portuguese yield was 1.6 times the 90-day average.
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