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Spanish 10-year bonds advanced, snapping a three-day decline, as the country sold 4.6 billion euros ($6 billion) of bills at its first auction since the European Central Bank proposed buying sovereign debt.
Spain’s 10-year yield, which earlier climbed above 6 percent for a second day, declined as Deputy Prime Minister Soraya Saenz de Santamaria said the country will consider seeking a bailout if the conditions imposed are acceptable. Italian bonds rose for the first time in three days. German 10- year bunds gained as investor confidence stayed negative in September. The European Financial Stability Facility sold 182- day bills at a negative yield.
“The auction was reasonable and gives some confidence Spain can keep going for a while longer,” said Elisabeth Afseth, a fixed-income analyst at Investec Bank Plc in London. “It shows the ECB have bought them some time and that’s what’s taken a little bit of the pressure off them today. However, they will probably still need a bailout at some stage.”
Spain’s 10-year yield dropped eight basis points, or 0.08 percentage point, to 5.90 percent at 5 p.m. London time, after climbing to 6.06 percent, the highest since Sept. 7. The 5.85 percent security due in January 2022 gained 0.545, or 5.45 euros per 1,000-euro face amount, to 99.635. The yield on Italian 10- year bonds fell five basis points to 5.05 percent.
Spain sold 12-month bills at 2.835 percent, compared with 3.07 percent when they were last auctioned on Aug. 21, and 18- month bills at 3.072 percent, versus 3.335 percent. The Madrid- based Treasury plans to sell another 4.5 billion euros of bonds on Sept. 20. Europe’s temporary bailout fund, also known as the EFSF, sold 1.94 billion euros of six-month bills at an average yield of minus 0.0181 percent.
The yield on Spanish 10-year bonds reached a euro-era record 7.75 percent on July 25, before ECB President Mario Draghi pledged a day later to do “whatever it takes” to safeguard the monetary union. Draghi gave details of the central bank’s asset-purchase plan on Sept. 6, helping to push the yield to a five-month low of 5.55 percent four days later. Activation of the program is dependent on countries asking for help and submitting themselves to conditions set by the ECB.
“If we get our borrowing costs to fall, so we pay less, and if we manage to do that by doing reforms and without new sacrifices” a financial rescue may be an option, Saenz said in an interview with Telecinco.
ECB Governing Council member Luc Coene said rising borrowing costs may force Spain into asking for help.
If markets see that Spain won’t ask for assistance, “then it will not be long before spreads rise again, and then Spain will be somewhat forced to come back on its decision and submit to the conditionality program,” Coene said at a panel discussion in London yesterday.
The extra yield, or spread, that investors demand to hold Spanish 10-year bonds instead of German bunds slipped four basis points to 426 basis points, down from a euro-era record 650 basis points in July. It narrowed 21 basis points since Sept. 6.
“It would appear that the drop in yields has encouraged Spanish politicians to try and tough it out, but the numbers aren’t good,” Michael Hewson, a market analyst at CMC Markets U.K. Plc in London, wrote in a client note. “The concern remains that continued prevarication will send bond yields higher again, with attention now turning to” Spain’s 10-year bond auction in two days’ time.
Volatility on Portuguese bonds was the highest in euro-area markets today, followed by Spain and Austria, according to measures of 10-year or equivalent-maturity debt, the spread between two-year and 10-year securities and credit-default swaps. The yield on Portugal’s bond due in October 2023 climbed 22 basis points to 8.65 percent.
Germany’s 10-year yield fell three basis points to 1.64 percent, after being as high as 1.734 percent yesterday, the most since April 26.
The nation plans to sell 5 billion euros of two-year notes tomorrow. It last sold the securities on Aug. 22 at an average yield of zero, compared with a record-low auction yield of minus 0.06 percent in July.
Germany’s ZEW Center for European Economic Research said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, climbed to minus 18.2 from minus 25.5 in August. The gauge of the current situation fell to 12.6, the lowest since June 2010.
German bonds returned 2 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish securities were little changed, while Italy’s debt earned 15 percent.
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