Overseas investors increased their holdings of Spanish debt last month for the first time in almost a year, as the prospect of a European Central Bank bailout boosted non-resident demand for the securities.
Government-bond trading volumes jumped to the most since May and domestic banks were able to reduce their share of the sovereign securities, according to a report posted on the Spanish Treasury’s website today. Yields fell after ECB President Mario Draghi outlined on Sept. 6 a bond-buying program to cap rates in the euro area. Spain’s Prime Minister Mariano Rajoy said on Oct. 19 he’s not facing pressure to seek a sovereign bailout, a condition of the central-bank purchases.
“The pace of the rally in Spanish yields suggested this trend,” said Alessandro Giansanti, a senior rates strategist at ING Groep NV in Amsterdam. “The ECB has been successful so far, but the market will move back to a negative mood if Spain will not accelerate its bailout request. Speculative traders can easily take profit on their exposure if spreads re-widen.”
Non-resident investors boosted their share of Spanish government debt to 35.4 percent in September from 33.5 percent the previous month, according to the report. That’s the first increase since November 2011. Spain’s banks reduced their holdings to 32.4 percent of the total from 34.1 percent, the data showed.
Spain’s 10-year bond yield fell three basis points to 5.59 percent at 3:20 p.m. London time today. The rate has dropped more than 2 percentage points from a euro-era high of 7.75 percent reached on July 25, the day before Draghi pledged to do “whatever it takes” to defend the euro. Spanish bonds returned 4.6 percent in September, the most since December 2011, according to Bank of America Merrill Lynch indexes.
The average turnover of Spanish bonds climbed to 42.5 billion euros ($55 billion) a day in September, from 38.1 billion euros a day the month earlier, according to the report. The traded amount was 68.1 billion euros a day in September 2011.
JPMorgan Asset Management’s International Fixed-Income Group cut its holdings of Spanish securities this week to match the benchmark used to monitor performance as El Confidencial reported the nation would miss its budget-deficit target, according to Iain Stealey, a portfolio manager in London.
Stealey said in an interview yesterday that he would buy Spanish debt if the nation sought external aid.