Bloomberg News

Spanish Bonds Lead European Gains on Yield Search

March 08, 2013

Spain’s bonds rose, with 10-year yields dropping to the lowest in more than two years, as a report showing industrial production shrank less than economists forecast added to signs Europe’s economy is stabilizing.

The nation’s five-year yields fell to the lowest level since November 2010 after European Central Bank President Mario Draghi said yesterday that the region’s economy will stabilize this year. German bunds fell for a fifth day as data showed U.S. payrolls increased more than economists forecast in February, damping demand for safer assets. Portugal’s 10-year bonds headed for their biggest weekly gain in two months after Standard & Poor’s raised the nation’s credit-rating outlook yesterday.

“If we continue in a prevailing low interest-rate environment overall, investors will be looking for higher- yielding assets,” said Norbert Aul, a rates strategist at Royal Bank of Canada in London. “In terms of carry and outright performance potential, Spain is still the place to be in the euro area.”

Spanish 10-year yields dropped 13 basis points, or 0.13 percentage point, to 4.76 percent at 4:34 p.m. London time, after sliding to 4.75 percent, the lowest level since Nov. 23, 2010. The 5.4 percent bond maturing in January 2023 rose 1.06, or 10.60 euros per 1,000-euro ($1,299) face amount, to 104.955.

The five-year yield fell 13 basis points to 3.44 percent after declining to 3.42 percent, the least since Nov. 4, 2010.

Contraction Eases

Spanish industrial output shrank 5 percent in January from a year earlier, after declining a revised 7.1 percent in December, the National Statistics Institute said. That compared with the median estimate of a 6 percent drop in a Bloomberg News survey of economists.

“Later in 2013 economic activity should gradually recover, supported by a strengthening global backdrop and our accommodative monetary policy stance,” Draghi told a press conference in Frankfurt yesterday after an ECB policy meeting.

Spain’s 10-year bonds gained for an eighth day today, the longest streak since February 2012. Yields have dropped from a euro-era record 7.75 percent on July 25, the day before Draghi vowed to do whatever it takes to safeguard the euro’s future.

Italy’s 10-year yield was little changed at 4.59 percent, still higher than before elections on Feb. 24-25 left the nation with a hung parliament. The benchmark yield was 4.45 percent on Feb. 22, the last trading day before the vote.

Spanish securities are outperforming Italy’s as it has avoided contagion from the latter’s inconclusive elections, according to Carmignac Gestion SA.

Contagion Absent

“With elections failing to produce a clear majority, moderate pressure was generated on Italian yields,” Didier Saint-Georges, a member of the investment committee at Carmignac Gestion, wrote in a note to clients. “However, there was a notable absence of contagion to Spain, whose long-term yields were stable over the month.”

German bunds fell as the U.S. Labor Department said employment rose 236,000 last month after a revised 119,000 gain in January. The median forecast of 90 economists surveyed by Bloomberg projected an increase of 165,000.

The yield on Germany’s 10-year bund rose three basis points to 1.52 percent, after reaching 1.54 percent, the highest since Feb. 25. The yield has jumped 11 basis points this week.

Portugal’s 10-year yields were little changed today at 5.93 percent, having dropped 45 basis points this week, the most since the period ended Jan. 4.

S&P raised Portugal’s credit-rating outlook to stable from negative yesterday, saying the “revision reflects additional evidence that European institutions will continue to support Portugal’s adjustment program.”

Volatility on Spanish bonds was the highest in euro-area markets, followed by those of Finland and Germany, according to measures of 10-year debt, the yield spread between two- and 10- year securities, and credit-default swaps.

Spanish government bonds returned 1 percent this month through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Italy’s securities advanced 0.6 percent, while German bunds lost 0.3 percent.

To contact the reporters on this story: Neal Armstrong in London at narmstrong8@bloomberg.net; Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net

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


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