Spanish Bonds Fall After ECB; German Note Yields Drop to Record
Spanish two-year government notes fell for the second time in three weeks as optimism faded that the European Central Bank’s offer of three-year loans to banks will boost confidence in the region’s sovereign borrowers.
Italy’s 10-year rates advanced for a second week, passing the 7 percent level that pushed Greece, Ireland and Portugal to seek bailouts. The Frankfurt-based ECB allotted 489 billion euros ($645 billion) in 1,134-day loans on Dec. 21, almost double the median estimate of 293 billion euros in a Bloomberg News survey of economists. German and Dutch two-year yields dropped to records as concern that the euro-area economy will stall next year spurred demand for the region’s safest assets.
“The market maybe got a little over-excited ahead of the loan operation,” said Peter Chatwell, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “What materialized wasn’t the great euphoria that some had expected. It didn’t serve to be a game-changing event.”
Spanish two-year note yields rose 18 basis points, or 0.18 percentage point, over the week to 3.64 percent at 4:12 p.m. in London yesterday. The 2.5 percent security maturing in October 2013 fell 0.3, or 3 euros per 1,000-euro face amount, to 97.995.
Ten-year Spanish rates climbed six basis points to 5.37 percent. Ten-year Italian yields fell eight basis points to 6.93 percent. The yield on the securities surged more than 2 percentage points this year as Europe’s debt crisis intensified, driving up borrowing costs across the region.
Growth Prospects
Growth prospects in Europe have worsened since September, U.K. central bank Governor Mervyn King said yesterday after a risk assessment by European officials. The European Central Bank cut its 2012 euro-area growth forecast this month to 0.3 percent.
ECB policy makers shouldn’t shirk from using quantitative easing if deflation becomes a danger to the euro region, Executive Board member Lorenzo Bini Smaghi said in a Financial Times interview published Dec. 22.
German two-year rates were little changed over the week, after falling to a record of 0.201 percent yesterday. Dutch two- year yields reached a euro-era low 0.265 percent on Dec. 20.
Italian 10-year bonds may decline next week as the nation prepares to sell bonds and bills. It will auction 9 billion euros of 179-day bills on Dec. 28 and debt maturing in 2014, 2018, 2021 and 2022 on Dec. 29. Italy and Spain have about 149 billion euros of bonds and bills maturing in the first quarter of next year, data compiled by Bloomberg shows.
“Next week’s auctions may put some pressure on Italy,” Credit Agricole’s Chatwell said.
Spanish government bonds have handed investors a gain of 5.1 percent this year through Dec. 22, according to indexes compiled by the European Federation of Financial Analysts Societies and Bloomberg. German bunds gained 9 percent and Italian debt lost 5.8 percent, the indexes show.
To contact the reporters on this story: Emma Charlton in London at echarlton1@bloomberg.net; Keith Jenkins in London at kjenkins3@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
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