Bloomberg News

Spanish 10-Year Yields Fall Below 7% as Leaders Speed Up Bailout

July 10, 2012

Spain’s 10-year bonds rose for the first time in five days, pushing the yield to less than 7 percent, as euro-region leaders agreed to accelerate rescue loans for the nation’s banks.

Italian securities also advanced on speculation the measures will stem the spread of the debt crisis. Finance chiefs agreed to lend 30 billion euros ($36.8 billion) by the end of this month. German two-year note yields fell below zero for the third consecutive day and the Netherlands sold 2.55 billion euros of three-year notes at a record-low yield. Greece auctioned six-month bills.

“Spanish and Italian bonds have picked up a little bit of a bid,” said Peter Chatwell, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “The market was positioned for a slightly worse outcome from the summit, and there’s been some unwinding of short positions,” he said, referring to bets that an asset price will fall.

Spanish 10-year yields fell 24 basis points, or 0.24 percentage point, to 6.82 percent at 4:29 p.m. London time. The 5.85 percent bond due January 2022 gained 1.58, or 15.80 euros per 1,000-euro face amount, to 93.31. The rate on similar- maturity Italian debt dropped 15 basis points to 5.96 percent.

Euro ministers gave Spain an extra year to cut its budget deficit to less than 3 percent of gross domestic product after a meeting in Brussels ended today. Loans to the nation will average 12.5 years and run as long as 15 years, with the goal of eventually using the euro-area bailout fund to recapitalize banks directly instead of burdening the Spanish government.

‘Some Hope’

“The outcome of the euro group meeting could have been worse,” said Norbert Aul, a rates strategist at Royal Bank of Canada in London. “At least we have some hope that we have the potential mutualization of financial liabilities in the medium- to-long term.”

Spanish banks will receive European rescue-fund bonds that can be turned into cash at the European Central Bank, according to Economy Minister Luis de Guindos.

Spain’s FROB rescue fund will distribute bonds issued by the European Financial Stability Facility to the banks, which “can use them at the ECB if they need the liquidity,” de Guindos told reporters in Brussels today.

German Debt

The EFSF sold 6 billion euros of bonds due in September 2017 to yield 1.65 percent in an offering via banks today.

The rate on Italy’s two-year note fell as much as 39 basis points to 3.75 percent before climbing back to 3.98 percent. The yield on similar-maturity Spanish debt dropped 33 basis points to 4.75 percent after sliding as low as 4.63 percent. Those are the biggest intraday declines since June 29, according to data compiled by Bloomberg.

Germany’s borrowing costs have plunged to records as investors sought havens from Europe’s financial turmoil. The nation will auction an additional five billion euros of 10-year bonds tomorrow. It sold six-month bills yesterday at a record- low yield of minus 0.0344 percent, while France auctioned similar-maturity debt at a negative yield for the first time.

The German two-year note yield was at zero after dropping to minus 0.016 percent, approaching the all-time low of minus 0.018 percent set on July 6. The 10-year yield was little changed at 1.32 percent, after reaching a record-low 1.127 percent on June 1.

Dutch Auction

The Netherlands allotted 2.55 billion euros of 0.75 percent notes due in April 2015 at a yield of 0.218 percent, the lowest rate on debt with a similar maturity since Bloomberg began tracking the data in 1999. Greece sold 1.625 billion euros of six-month bills at a yield of 4.7 percent, compared with a rate of 4.73 percent at an auction of similar debt on June 12.

Volatility on Spanish government debt was the highest in developed markets today, followed by Belgium and Austria, according to measures of 10-year bonds, the spread between two- and 10-year securities, and credit-default swaps.

The rate on Austrian two-year notes fell as much as eight basis points to a record 0.112 percent, data compiled by Bloomberg show.

German debt returned 3.6 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish securities lost 6.5 percent, with Italian bonds making 7.2 percent.

The yield difference, or spread, between German 10-year bunds and two-year notes may slip to the lowest in almost six- weeks, according to data compiled by Bloomberg, based on technical indicators.

The spread, currently at 132 basis points, is below its 50- data moving average of 137 basis points and may target a move toward the June 1 low of 113 basis points, the data show.

To contact the reporters on this story: David Goodman in London at dgoodman28@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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