Bloomberg News

Spanish Bonds Slide After Sale as Draghi Highlights Growth Risks

November 08, 2012

Spanish bonds fell, pushing yields to the highest in four weeks, after the nation sold 4.76 billion euros ($6.06 billion) of debt amid speculation its chances of seeking a bailout have receded.

Spain’s securities slid for a second day as European Central Bank President Mario Draghi said at a policy meeting that risks to the region’s economic growth were on the downside. Italian bonds also dropped as Market News International said the ECB was reluctant to start buying government debt. German two- year yields were below zero for a fourth day and Belgian 10-year yields declined to a record as investors sought safer assets.

“Spanish yields are rising partly because of new supply today and growing speculation in the market that Spain may not apply for the ECB’s aid program any time soon,” said Jamie Searle, a fixed-income strategist at Citigroup Inc. in London. “Those who bought peripheral bonds in anticipation of this may be lightening up on their positions a bit.”

Spain’s 10-year yield rose 16 basis points, or 0.16 percentage point, to 5.85 percent at 4:57 p.m. London time, the highest since Oct. 11. The 5.85 percent bond due in January 2022 fell 1.11, or 11.10 euros per 1,000-euro face amount, to 99.965.

There’s an increasingly widespread view Spain can put off a decision on whether to ask for aid until 2013, with the country’s next bond redemptions not due until January, Market News said, citing European Union officials it didn’t name.

Italy’s 10-year yield climbed 11 basis points to 5.02 percent.

Spanish Spread

Germany’s 10-year bund yield was two basis points lower at 1.36 percent, after falling to 1.35 percent, the least since Sept. 3. The two-year rate was at minus 0.033 percent.

The extra yield investors demand to hold Spain’s 10-year bonds instead of German bunds reached a four-week high. The spread widened as much as 19 basis points to 450 basis points, the most since Oct. 9.

“The market expectations of Spain asking for a bailout have been cooling off,” said Pablo Zaragoza, head of interest- rate strategy for Europe and the U.S. at Banco Bilbao Vizcaya Argentaria SA (BBVA) in Madrid. “There is a high probability of Spain asking for aid sooner rather than later, probably in the next two- to three months, and that would initially have a positive action on the bonds.”

The Treasury in Madrid sold three-year notes at an average yield of 3.66 percent, compared with 3.956 percent at an auction last month, and a new five-year benchmark bond at 4.68 percent.

It allotted 731 million euros of bonds maturing in 2032 at an average yield of 6.328 percent, compared with 4.777 percent when they were last sold in October 2010.

Sales Completed

The Treasury said it has completed its program of medium- and long-term debt sales for 2012 and will use the auctions scheduled for the rest of the year to raise funds for 2013.

“Economic activity in the euro area is expected to remain weak” and underlying inflation pressures “should remain moderate,” Draghi said at a press conference in Frankfurt. Policy makers are “ready to undertake” purchases of government bonds, or so-called Outright Monetary Transactions, “which will help to avoid extreme scenarios,” Draghi said.

Greek bonds fell for a second day as German Finance Minister Wolfgang Schaeuble said a meeting of euro-region finance ministers next week may fail to take a decision on unlocking a 31.5 billion-euro aid tranche for Greece that’s been frozen since June. Prime Minister Antonis Samaras won parliamentary approval for his austerity package early today in Athens.

Schaeuble Comments

“We’re not out of the woods yet,” Schaeuble said at a panel discussion in Hamburg today with former Chancellor Helmut Schmidt. “At the moment, I don’t see how we can take the decision already next week.”

The yield on Greece’s 2 percent bond due February 2023 climbed 72 basis points to 18.07 percent, leaving the price at 30.62 percent of face value.

Belgian yields declined after the nation’s debt agency said bank-financing costs won’t require more bond sales this year. The 10-year rate fell as much as three basis points to 2.32 percent, a record low, before settling at 2.34 percent.

German bonds returned 3.9 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spain’s bonds rose 2.8 percent and Belgian securities handed investors a return of 14 percent.

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