Bloomberg News

Bund Yields Decline to Record as Spanish Borrowing Costs Jump

May 17, 2012

German bonds rose, pushing two-, five- and 10-year yields to record lows, as Spain’s borrowing costs jumped at a debt sale a day after Prime Minister Mariano Rajoy said the nation risked losing access to market funding.

Dutch 10-year yields slid to an all-time low, while Spanish and Italian two-year rates climbed. Irish two-year securities slipped for a 10th day after the European Central Bank said it will temporarily stop lending to some Greek banks, stoking concern the region’s financial crisis may deepen. European stocks declined, led by Spanish lender Bankia SA.

“People are still worried about what’s happening in peripheral Europe,” said Mohit Kumar, head of European interest-rate strategy at Deutsche Bank AG in London. The market is “very much focused on Greece,” he said. “Core rates will remain supported.”

German 10-year yields declined four basis points, or 0.04 percentage point, to 1.43 percent at 4:18 p.m. London time, after falling to 1.42 percent. The 1.75 percent security due July 2022 advanced 0.365, or 3.65 euros per 1,000-euro ($1,271) face amount, to 102.98.

The two-year note yield slipped two basis points to 0.05 percent after reaching 0.046 percent. The five-year rate dropped to as low as 0.475 percent.

Ten-year bund futures climbed to an all-time high. The contract expiring in June rose as much as 0.3 percent to 143.79.

The Dutch 10-year yield fell as much as five basis points to 1.925 percent, the least since Bloomberg began compiling the data in 1990.

Spanish Yields

Spain auctioned 2.49 billion euros of debt, including July 2015 notes at a yield of 4.876 percent. That compares with 4.037 percent when they were sold two weeks ago. The nation also sold January 2015 debt and April 2016 notes.

Today’s auction “fits the recent pattern that the Spanish Treasury is able to get its supply away, but at an ever- increasing cost,” said Richard McGuire, a senior fixed-income strategist at Rabobank International in London. “We’re running out of road of debt sustainability for Spain. Some form of outside intervention will be necessary.”

The extra yield that investors get for holding Spain’s 10- year bonds instead of benchmark German bunds increased for the fourth time in five days, rising to 489 basis points, after surging yesterday to a euro-era record of 507 basis points.

‘Serious Risk’

Rajoy said yesterday that the nation faces the “serious risk” of losing access to debt markets. Budget cuts “are what decide whether we can finance ourselves or not,” Budget Minister Cristobal Montoro said yesterday.

Spanish 10-year yields rose three basis points to 6.32 percent, after surging to more than 6.50 percent yesterday for the first time since November.

The yield on Spain’s two-year notes climbed 10 basis points to 4.20 percent, after increasing by as much as 21 basis points to 4.31 percent. It reached 4.33 percent yesterday, the highest since Dec. 13.

Yields on Italian notes due April 2014 jumped for a fifth day, rising 15 basis points to 3.70 percent, after touching 3.88 percent, the most since Jan. 23.

European stocks declined for a fourth day, with the Stoxx Europe 600 Index declining 1 percent. Bankia (BKIA) shares fell 13 percent after a report that depositors withdrew 1 billion euros in the past week.

Volatility on Italian bonds was the highest in euro-area markets followed by Belgium and Ireland, according to measures of 10-year bonds, two- and 10-year yield spreads and credit- default swaps.

The yield on Ireland’s two-year notes climbed 13 basis points to 6.82 percent. Irish debt securities have also declined amid speculation voters will reject a referendum this month that would enshrine planned European fiscal rules in national law.

German debt has returned 2.6 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish bonds have lost 3.6 percent, the data show.

To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@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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