Spanish Notes Drop as Rajoy Says Under No Pressure to Seek Aid

Spanish government notes fell, with two-year yields rising from the lowest in more than six months, after Prime Minister Mariano Rajoy said he was not facing pressure to seek a sovereign bailout.

The two-year securities dropped for the first time in four days as Rajoy’s comments at a European Union summit in Brussels fueled concern a delay in asking for aid will prolong the nation’s debt crisis. German bunds advanced, pushing the yield down from near the highest in a month. Italian bonds completed a third weekly gain after the Treasury said yesterday it received orders for more than 18 billion euros ($23.6 billion) of retail securities it was selling to investors.

“The market is still very sensitive regarding the bailout request” from Spain, said Michael Leister, a fixed-income strategist at Commerzbank AG in London. “Our view is that the market will have to wait to get clarity.”

Spain’s two-year yield climbed four basis points, or 0.04 percentage point, to 2.75 percent at 4:51 p.m. London time after dropping to 2.66 percent, the lowest level since April 4. The 3.3 percent note due in October 2014 fell 0.085, or 0.85 euros per 1,000-euro face amount, to 101.07.

Rajoy, speaking to reporters in Brussels, said it was “very good” that the European Central Bank’s unlimited bond- buying program was available if necessary.

“I’m not going to take into account any pressure that people might exert on me, but frankly no one is doing that,” he said. The ECB said last month it was open to buying government bonds of nations seeking assistance, though they needed to request it first.

Popularity Test

Rajoy faces assembly elections in his home region of Galicia this weekend in a test of his popularity after implementing the deepest budget cuts in three decades. The Basque Country also votes on Oct. 21.

The yield on Germany’s 10-year bund fell four basis points to 1.60 percent after climbing to 1.66 percent yesterday, the highest level since Sept. 19.

Italian bonds rose this week as Treasury said the amount of retail securities it sold was double that of its two previous offers combined. The Treasury earlier this year began selling the securities to local investors, who are among the biggest savers in Europe, as contagion from the region’s debt crisis triggered an exodus of foreign funds.

Italy’s 10-year yields dropped 22 basis points this week to 4.77 percent after declining to 4.70 percent today, the lowest level since March 9. They were little changed today.

Most Volatile

Volatility on Dutch bonds was the highest in euro-area markets, followed by Finland and Portugal, according to measures of 10-year or equivalent-maturity debt, the spread between two- year and 10-year securities and credit-default swaps.

The extra yield investors demand to hold Dutch 10-year bonds instead of similar maturity German bunds shrank one basis point to 22 basis points after contracting to 20 basis points yesterday, the least since March 2011.

Germany’s bonds returned 2.2 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish securities rose 4.1 percent and Italian debt gained 18 percent.

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: Paul Dobson at pdobson2@bloomberg.net

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