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Spanish and Italian bonds fell, underperforming their euro-area peers, amid concern that European leaders won’t be able to resolve differences on a way to end the sovereign-debt crisis and boost growth.
Spanish two-year yields jumped by the most in a week as German Chancellor Angela Merkel said joint borrowing by euro- area governments would be counterproductive. German bunds rose as investors sought safer assets after billionaire investor George Soros said a failure by European leaders meeting this week to tackle the financial crisis could spell the demise of the euro. Belgian notes gained for a fourth day as the country sold securities due between 2017 and 2032.
“It’s the specter of failure surrounding the euro-zone meetings,” said Marc Ostwald, a fixed-income strategist at Monument Securities Ltd. in London. “It’s difficult to see how anything can displace the focus on the euro zone or how anything can be resolved this week.”
Spain’s two-year yields climbed 39 basis points, or 0.39 percentage point, to 4.83 percent at 4:42 p.m. London time. That’s the biggest increase since June 18. The 3.4 percent security due April 2014 dropped 0.66, or 6.60 euros per 1,000- euro ($1,249) face amount, to 97.5352. Similar-maturity Italian yields jumped 53 basis points to 4.33 percent. They rose as much as 55 basis points, the biggest daily gain since May 29.
Volatility on Italian government debt was the highest in developed markets today followed by Spain and Sweden, according to measures of 10-year bonds, the spread between two-and 10-year securities, and credit-default swaps.
Spanish Economy Minister Luis de Guindos made a formal request today for a lifeline of as much as 100 billion euros in a letter to Jean-Claude Juncker, head of the group of euro- region finance ministers. European Union leaders are due to meet in Brussels on June 28-29 and it’s still to be decided whether the temporary European Financial Stability Facility or the European Stability Mechanism, the successor fund due to come into effect next month, will be used for Spain’s aid.
Spanish securities lost 4 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies, as the nation moved closer to seeking external financial support. Investors have been buying German bonds as a haven through the debt crisis, leaving them with a 2.2 percent gain for the year to date.
Germany’s Merkel resisted attempts by the leaders of France, Italy and Spain to accelerate action to ease the crisis last week, while the Bundesbank said it opposed European Central Bank plans to help ailing lenders.
The Chancellor today rejected joint euro-area bonds or bills, saying that introducing shared debt in the 17-nation currency region now would be “wrong and counterproductive.” The goal is a political union in Europe with stronger oversight, she said.
Greece is also seeking to change some measures in that country’s second bailout.
“We probably need a crisis before the real decisions are taken,” Shahid Ikram, head of sovereigns at Aviva Investors Ltd. in London, said in an interview with Maryam Nemazee on Bloomberg Television’s “The Pulse.” “I’d like to see direct recapitalization of banks while Spain and Italy need to get access to cheaper funding.”
German 10-year yields fell 12 basis points today to 1.47 percent. The yield has dropped from 1.64 percent on June 20, which was the highest rate since May 3.
Bunds stayed higher as Fitch Ratings downgraded Cyprus to below investment grade, cutting it to BB+ from BBB-, as the country negotiates international aid for its troubled banks with both the European Union and Russia.
“Cypriot banks will require substantial injections of capital in order to secure confidence in their financial viability,” Fitch said today in a statement. The company estimated the cost at as much as 6 billion euros.
Belgium’s sale of 1.275 billion euros of bonds maturing in September 2022 attracted bids equivalent to 2.64 times the amount on offer, up from a so-called bid-to-cover ratio of 1.86 in May. Securities due June 2017 attracted a bid-to-cover ratio of 1.79 times, down from 2.60 last month.
Belgium’s five-year yield fell three basis points to 2.01 percent, after touching 1.993 percent, the least since June 11.
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