Spanish Bonds Fall on Restructuring Concern; German Bunds Gain
Spanish bonds fell, pushing 10-year yields to the highest level in a month, after Citigroup Inc. chief economist Willem Buiter said the nation faced an increasing risk of a debt restructuring.
Ten-year Spanish securities slid for an eighth day, widening the extra yield over similar-maturity German bunds to the most in two weeks. German two-year notes advanced for a second day after the government sold 5 billion euros ($6.61 billion) of the securities. Portugal’s bonds gained as borrowing costs fell at its first debt auction in more than a month.
“Spanish spreads moved much wider after Buiter’s comments,” said Lyn Graham-Taylor, a fixed-income strategist at Rabobank International in London. “This highlights concern over further debt restructuring. Bunds recovered on the resulting safe-haven demand.”
The Spanish 10-year yield jumped 18 basis points, or 0.18 percentage point, to 5.41 percent at 4:30 p.m. London time, the highest since Feb. 16. The 5.85 percent bonds maturing in January 2022 dropped 1.38, or 13.80 euros per 1,000-euro face amount, to 103.275. The two-year yield climbed 10 basis points to 2.45 percent.
The extra yield investors demand to hold 10-year Spanish bonds instead of similar-maturity German bunds expanded 23 basis points to 342 basis points, the widest since March 7.
Spain is at “a greater risk than ever before” of a debt restructuring, Buiter said in an interview with Tom Keene and Ken Prewitt on Bloomberg Radio. “Spain is the key country about which I’m most worried.” The country has “moved to the wrong side of the spectrum,” he said.
Volatility in Spanish government debt was the highest in euro-area markets today, followed by Portugal, according to measures of 10-year bonds, two- and 10-year yield spreads and credit-default swaps.
German 10-year yields dropped from a three-month high following the today’s note auction.
The nation sold 5 billion euros of debt due in March 2014 at an average yield of 0.31 percent, compared with 0.25 percent at the prior auction on Feb. 22. Investors bid for 1.8 times the amount allotted, the same as the previous sale. The nation also sold 2 billion euros of inflation-linked bonds.
“Demand was solid with total bids for 7.25 billion euros” at the German sale, said Annalisa Piazza, a fixed-income analyst at Newedge Group in London. “The auction was well received and this is filtering through to the secondary market.”
Germany’s two-year yield dropped four basis points to 0.3 percent. The 10-year yield fell six basis points to 1.98 percent after rising to 2.07 percent, the highest level since Dec. 13.
Portuguese two-year notes advanced for a fifth day as borrowing costs declined at a bill auction.
Portugal sold 1.61 billion euros of one-year bills at an average yield of 3.65 percent, down from 4.94 percent at the previous offering on Feb. 15. Investors bid for 2.5 times the amount allotted, versus a bid-to-cover ratio of 2.02 times last month. The nation also sold 382 million euros of 119-day debt.
The two-year yield fell 75 basis points to 11.34 percent.
The extra yield investors demand to hold Dutch bonds instead of German bunds widened after an independent agency said the Netherland’s budget deficit may increase.
The Netherlands Bureau for Economic Policy Analysis said the shortfall would exceed the European Union’s target of 3 percent. The agency said the 2013 deficit would be 4.6 percent, revised from 4.5 percent.
“The market is worried about the Dutch ability to reduce its deficit,” said Alessandro Giansanti, a senior rates strategist at ING Groep NV in Amsterdam. “There’s a thin majority in parliament and the risks for a political crisis are elevated. A political impasse could drive rating actions in the future.”
The Dutch 10-year yield fell two basis points to 2.52 percent, after rising to 2.62 percent, the most since Dec. 7. The spread between Dutch 10-year bonds and similar-maturity German bunds expanded three basis points to 54 basis points.
The European Financial Stability Facility sold 4 billion euros of bonds maturing in May 2017 at 38 basis points more than the benchmark swap rate, giving an implied yield of 2.061 percent. The sale “met with strong demand with orders received of approximately 12.8 billion euros,” the EFSF said.
German two-year note futures may fall to a three-month low should they break below a key level of so-called support, UBS AG said, citing trading patterns.
The contracts “are bearish while they trade below the 110.15 retracement,” Richard Adcock, head of fixed-income technical strategy at UBS in London, wrote in a research note. “A break below 109.98 will be the next bearish trigger, exposing the market to 109.86, the Dec. 7 low.”
The two-year note contract due in June rose 0.1 percent to 110.14. Support refers to an area on a graph where technical analysts anticipate buy orders to be grouped.
German bonds handed investors a loss of 1.1 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish securities gained 1.9 percent, and Portuguese debt climbed 5.7 percent, the data show.
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