Two-year yields dropped the most in more than a week after a person familiar with the matter said Spain is about to receive an emergency payout from an aid package for the nation’s ailing banks. German bunds, Europe’s benchmark government securities, rose after a report showed euro-area inflation was unchanged last month. ECB President Mario Draghi signaled on Aug. 2 that the central bank would consider purchasing notes as part of plans to stem the region’s debt crisis.
“The broad-based improvement in Spanish yields comes amid more speculation that the ECB will buy Spanish debt,” said Peter Chatwell, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “This may have served to flush out a few more short positions,” referring to bets that an asset will fall.
The yield on 10-year Spanish bonds dropped 12 basis points, or 0.12 percentage point, to 6.52 percent at 5:05 p.m. London time, the lowest level since July 12 and a fourth day of declines. The 5.85 percent security due January 2022 rose 0.785, or 7.85 euros per 1,000-euro ($1,236) face amount, to 95.31.
Spanish two-year yields slid 15 basis points to 3.99 percent, after falling as much as 19 basis points, the most since Aug. 6. The additional yield investors demand to hold Spanish 10-year debt over the notes rose six basis points to 261 basis points, the first time it had widened in eight days.
The spread increased to as much as 343 basis points on Aug. 6, days after Draghi said that any ECB debt purchases would focus “on the short end of the yield curve.”
Spain’s Prime Minister Mariano Rajoy said earlier this week he would ask the ECB to buy Spanish bonds “if it seems reasonable” and “until we know what we are talking about, we aren’t going to take any decisions.”
Cezary Lewanowicz, a spokesman for the European Commission in Brussels, said Spain hasn’t requested mobilization of the initial 30 billion-euro payment for its banks, declining to comment further. Officials at the Frankfurt-based ECB and Bankia and Spain’s Economy Ministry in Madrid, declined to comment.
Spain will apply for aid at a meeting of finance ministers and central bank governors next month, allowing the ECB to buy Spanish government debt in the secondary market once approval is won, according to a Medley Global Advisors report Bloomberg News obtained. Medley officials weren’t immediately available to comment.
“The move that happened a little earlier in part was supported by the Medley report, which, while it didn’t say anything new, just reminded everybody that in their view the Spaniards will eventually ask for a bailout,” Thomas Molloy, chief dealer at FX Solutions LLC, an online currency-trading company in Saddle River, New Jersey, said in a telephone interview. “With a bailout will likely come some ECB buying, which is likely to smack bond yields.”
Italian two-year yields slid 11 basis points to 3.22 percent, while German 10-year bund yields fell four basis points to 1.53 percent, snapping a three-day advance.
Inflation in the 17-nation single-currency bloc remained at 2.4 percent from a year ago, the same as in June and May, the European Union’s statistics office in Luxembourg said today, confirming an initial estimate published on July 31.
Volatility on Finnish bonds was the highest in euro-area markets today, followed by Italy and Germany, according to measures of 10-year debt, the spread between two-year and 10- year securities and credit-default swaps.
German bonds returned 2.5 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish securities lost 3.8 percent, while Italy’s debt made 10 percent.
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