Spanish Bonds Rise for 6th Day on ECB; Bund Yields at 1-Week Low
Spanish bonds rose for a sixth day amid optimism the European Central Bank’s planned loan operation next week will ease the region’s debt crisis, boosting demand for higher-yielding government debt.
German 10-year yields fell to a one-week low after the European Commission said the euro-area economy will shrink this year. The 10-year bonds of Greece, Portugal, Austria and France all outperformed bunds. Spanish debt has rallied since the ECB lent European banks 489 billion euros ($649 billion) of three- year loans on Dec. 21. The central bank is planning another longer-term refinancing operation at the end of this month.
“Demand for Spanish debt has been bolstered ahead of next week’s LTRO,” said Richard McGuire, a senior fixed-income strategist at Rabobank International in London. “If you’re confident the next LTRO is going to be significant, then you would be anticipating a further compression of front-end peripheral yields.”
The two-year Spanish yield fell five basis points, or 0.05 percentage point, to 2.68 percent at 4:14 p.m. London time. The 3.4 percent bond due April 2014 rose 0.1, or 1 euro per 1,000- euro face amount, to 101.490.
Spanish 10-year yields slipped two basis points to 5.07 percent. The additional yield, or spread, investors demand to hold the securities over bunds narrowed one basis point to 318 basis points.
Spanish, Italian Banks
Spanish and Italian banks will be the biggest users of next week’s loans, according to a report by Morgan Stanley published yesterday.
“Much of the proceeds will be ‘parked’ or invested in government securities,” Huw van Steenis, an analyst at Morgan Stanley in London wrote, adding that under the bank’s base case scenario Spanish banks alone could help Spain to fully fund itself this year.
The 17-nation euro-bloc economy will contract 0.3 percent, the commission said, abandoning a November forecast of 0.5 percent growth. The downgrade was mainly due to projected contractions of 1.3 percent in Italy and 1 percent in Spain.
The report came after the Ifo institute reported its business climate index, based on a survey of 7,000 executives, climbed to 109.6 from 108.3 in January. That’s the highest reading since July and more than the 108.8 median estimate in a Bloomberg survey of analysts.
Growth Outlook
“While improvements in the Ifo survey are obviously a positive, so long as concerns remain over the growth outlook and longer term sustainability of public finances of many euro-zone states it’s unlikely to be sufficient to alter the safe-haven appeal of bunds,” said Brian Barry, an analyst at Investec Bank Plc in London.
German 10-year bunds were little changed, with the yield at 1.89 percent, after sliding to 1.88 percent, the lowest level since Feb. 16.
The IMF will seek to keep its holdings of Greek securities under a new bailout package at 30 billion euros, including money still owed from a previous loan, an official said yesterday. The organization has yet to announce its share of the 130 billion- euro bailout package for Greece agreed on two days ago.
Bank Writedowns
The Greek March 2012 note rose to 25.75 percent of face value. It traded at 42 percent on Feb. 16.
Royal Bank of Scotland Group Plc, Commerzbank AG of Germany and France’s Credit Agricole SA all took writedowns on their Greek government debt two days after Greece’s private creditors agreed to a debt swap, paving the way for its second bailout.
RBS, Britain’s biggest government-owned lender, posted a wider-than-expected full-year loss after taking a sovereign-debt impairment of 1.1 billion pounds ($1.73 billion). The bank said it reduced its exposure to Greek, Italian, Irish, Portuguese and Spanish government debt by 90 percent last year.
Commerzbank, Germany’s second-biggest lender, booked a 700 million-euro writedown on Greek debt in the fourth quarter and Credit Agricole, France’s third-largest bank, reported a quarterly loss after booking 220 million euros in impairments on Greek debt.
LCH Clearnet Ltd., Europe’s biggest clearinghouse, increased the discount it applies for some Spanish, Italian and Belgian government bonds when they are used as collateral by its customers.
Portuguese Volatility
Belgian 10-year bonds fell, pushing the yield up four basis points to 3.67 percent. The yield on Italian debt of a similar maturity slipped three basis points to 5.54 percent.
Volatility on Portuguese debt was the highest in euro-area markets after Greece, according to measures of 10-year bonds, two- and 10-year yield spreads and credit-default swaps. The change in the spread was 1.8 times the 90-day average.
Portuguese 10-year bonds snapped a two-day decline, pushing the yield down nine basis points to 12.46 percent. Two-year note yields dropped, sliding 35 basis points to 12.60 percent.
Germany’s bonds have handed investors a loss of 0.2 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish debt returned 2.1 percent, according to the indexes.
To contact the reporters on this story: Lucy Meakin in London at lmeakin1@bloomberg.net; David Goodman in London at dgoodman28@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
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