July 10 (Bloomberg) -- Spain postponed a planned sale of 15-year bonds as investors shunned the debt on concern the fastest inflation and slowest economic growth in more than a decade will erode returns.

The government will wait until demand improves, according to Ivan Comerma, the Barcelona-based head of fixed income at Caixa Catalunya, which manages about $4.7 billion, and Raphael Gallardo, who helps oversee $862 billion of assets as a strategist at Axa Investment Managers in Paris. Both said they were approached by banks hired to sell the securities.

The deal was ``put on hold,'' Gallardo said. ``The string of bad cyclical news coming out of Spain in recent weeks has turned investors more cautious on the credit.''

Spanish home sales fell 31 percent in the first quarter as the nation's property slump deepened, the Housing Ministry said June 24. The economy will grow less than 2 percent this year, the slowest pace in 16 years, according to the government. Consumer prices rose an annual 5.1 percent in June, the fastest pace since 1997, the National Statistics Institute said June 27.

Spain's bonds handed investors a loss of 3 percent in the three months to the end of June, the worst quarterly performance in 14 years, according to Merrill Lynch & Co.'s Spanish Governments Index. The yield on the benchmark 10-year security fell 2 basis points, or 0.02 percentage point, to 4.66 percent in Madrid today. It was 4.43 percent on Jan. 1.

Widening Spread

Enrique Ezquerra, deputy director of public debt at the Treasury in Madrid, said the government is ``monitoring the market'' and will issue the bonds in the third quarter ``if market conditions are favorable.''

Spain appointed Banco Bilbao Vizcaya Argentaria SA, Calyon, Dresdner Kleinwort, HSBC Holdings Plc, Banco Santander SA and Societe Generale last month to arrange the sale of the euro- denominated debt, its debut issue of 2023 securities. The government scheduled the deal for the third quarter, according to the Treasury's Web site, though the banks were seeking buyers at least three days ago, Comerma said.

The difference in yields, or spread, between German and Spanish 10-year government debt may widen to the most in more than 10 years as credit losses spur investors to seek the safest assets, ING Bank NV said July 8. The spread exceeded 30 basis points, or 0.30 percentage point, three days ago for the first time in 11 weeks. It was 27 basis points today.

`Not Clear AAA'

Spain's debt is rated AAA by Moody's Investors Service and Standard & Poor's, the same as Germany's and higher than that of Italy, Portugal, Greece and Belgium.

``Spain isn't seen as a clear AAA issuer as it used to be because the economic downturn may hurt its fiscal position,'' said Kornelius Purps, a fixed-income strategist at UniCredit SpA in Munich. ``Investors are putting Spain along with other countries like Italy or Greece, holding lower credit ratings.''

Murray Parker, a London-based spokesman at Dresdner Kleinwort, and officials at BBVA and Santander in Madrid who asked not to be named, declined to comment. Malcolm Wallis, a London-based spokesman at HSBC, wasn't available for comment. Calyon's Delphine Hochain in Paris didn't return calls.

Underwriting banks ``are monitoring the market in order to find the best window of opportunity,'' Societe Generale said in a statement from London yesterday.

To contact the reporter on this story: Esteban Duarte in Madrid at eduarterubia@bloomberg.net.

Last Updated: July 10, 2008 12:51 EDT