Bloomberg News

Spain Bonds Fall on Economy in Longest Slump Since Draghi Pledge

October 24, 2012

Spain’s government bonds fell for a fourth day, the longest losing streak in three months, after euro-area services and manufacturing shrank more than economists forecast and German business confidence declined.

Italian, Greek and Portuguese securities dropped as the reports added to evidence the region’s financial woes are slowing growth, damping demand for the debt of so-called peripheral nations. German bunds were little changed after the nation attracted bids for more than its maximum target at a 10- year debt sale. The head of Europe’s permanent rescue fund said it still had 28 billion euros ($36.3 billion) of the 32 billion euros paid in so far to invest by the end of November.

Bonds of the most-indebted nations fell “because the weak data today highlighted the risk that the crisis could deteriorate further,” said Matteo Regesta, a senior interest- rate strategist at BNP Paribas SA in London. “Germany, which is a locomotive of growth in the euro region, is slowing and that is not good news for peripheral bonds. It needs growth to get out of the problem.”

Spain’s 10-year yield rose three basis points, or 0.03 percentage point, to 5.65 percent at 1:54 p.m. London time after climbing to 5.69 percent, the highest since Oct. 17. The 5.85 percent bond due in January 2022 fell 0.185, or 1.85 euros per 1,000-euro face amount, to 101.38.

The four-day decline is the longest since July 24, two days before European Central Bank President Mario Draghi said policy makers will do “whatever it takes” to preserve the euro.

Composite Index

A composite index based on a survey of purchasing managers in manufacturing and services in the euro area fell to 45.8 in October from 46.1 the previous month, London-based Markit Economics said. Analysts surveyed by Bloomberg forecast a reading of 46.5. A level below 50 indicates contraction. The Ifo institute in Munich said its business climate index dropped to 100 this month, the lowest since February 2010.

Italian two-year yields rose five basis points to 2.28 percent, Portugal’s 10-year rate climbed 25 basis points to 8.03 percent, and Greece’s 10-year yield increased five basis points to 17.09 percent.

The European Stability Mechanism has invested 4 billion euros in “highly rated” government bonds and the debt of international institutions, Klaus Regling, head of the ESM, said yesterday in a Bloomberg Television interview in Luxembourg.

“We will have the entire stock of 32 billion euros invested by the end of November,” he said.

German Auction

Germany’s debt agency received bids for 5.06 billion euros of September 2022 bonds at today’s auction, surpassing its maximum target of 4 billion euros. The securities were sold at 1.56 percent, up from 1.52 percent at the previous auction on Sept. 26.

Germany’s 10-year yield was little changed at 1.57 percent in the secondary market after dropping to 1.55 percent, the lowest since Oct. 17.

Volatility on Portuguese bonds was the highest in euro- region markets today, followed by Ireland, according to measures of 10-year or equivalent-maturity debt, the spread between two- and 10-year securities, and credit default swaps.

German bonds returned 2.5 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish securities rose 2.6 percent, while Italy’s made 17 percent.

To contact the reporters on this story: David Goodman in London at dgoodman28@bloomberg.net; Anchalee Worrachate in London at aworrachate@bloomberg.net

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net


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