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Spanish Bonds Decline Amid Slowdown Concern; French Bonds Fall

Spanish 10-year yields rose by the most in almost 17 years, leading the bonds of the euro region’s most-indebted countries lower, on concern that they will struggle to cut budget deficits amid the economic slowdown.

French bonds declined for a second week after borrowing costs climbed at debt sales. Italian securities also dropped as a report showed European confidence (EUESEMU) in the economic outlook fell to a two-year low in December. German 10-year bunds declined as the Commerce Department said the U.S. added more jobs than predicted by economists, adding to evidence the world’s largest economy may avoid a recession. Spain, Italy, the Netherlands, Austria and Germany plan to sell bonds next week.

“Market participants have remained in risk-averse mood this week,” said Peter Chatwell, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “Long- term yields continue to trend lower as growth expectations fall, and long-term peripheral spreads remain under widening pressure due to the heavy supply slate.”

The yield on Spanish 10-year bonds climbed to 5.71 percent, up 62 basis points from the end of last week. That’s the biggest rise since the five days ending Aug. 12, 1994, when yields climbed 63 basis points.

French 10-year yields rose 22 basis points, or 0.22 percentage point, to 3.36 percent, as of 4:58 p.m. London time yesterday, increasing for eight consecutive days, the longest run since June 2006. France sold 7.96 billion euros ($10.1 billion) of debt on Jan. 5, with 10-year borrowing costs rising to 3.29 percent from 3.18 percent at the country’s first bond auction of the year as credit-rating companies threaten to cut the nation’s AAA grade.

Impending Bond Sales

Spain is scheduled to sell notes maturing in 2015 and 2016 on Jan. 12, while Italy auctions bonds and floating-rate notes the following day. Germany will offer 5 billion euros of five- year notes on Jan. 9. The Netherlands is due to issue up to 3.5 billion euros of 2015 notes on Jan. 10, the same day Austria auctions 2022 bonds.

Austrian 10-year yields (GAGB10YR) surged 59 basis points, rising above 3.5 percent for the first time since Dec. 1, on concern the nation’s banks will lose money on loans to Hungary.

“Issues in Hungary where the country failed to fully issue bonds rippled into the euro zone, especially Austria, whose banks are heavily exposed to the Hungarian mortgage market,” Lee McDarby, head of dealing on the corporate and institutional treasury desk at Investec Bank Plc in London, wrote in a Jan. 6 note to investors.

An index of executive and consumer sentiment in the 17- nation euro area fell to 93.3 in December from a revised 93.8 the previous month, the European Commission in Brussels said yesterday.

The European Central Bank will keep its main interest rate (EURR002W) at a record low 1 percent on Jan. 12, according to all but three of 51 economist estimates compiled by Bloomberg.

To contact the reporters on this story: David Goodman in London at dgoodman28@bloomberg.net; Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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