Spain’s Bonds Drop on Debt Sale Data as Manufacturing Contracts

Spain’s government bonds declined, with 10-year securities falling for the first time in three days, after the nation said a debt sale next week will include the longest maturity it has auctioned in 18 months.

Two-year yields climbed the most in a week after a euro- area report showed euro-region manufacturing shrank for a 15th month in October, adding to speculation the debt crisis is worsening. Spain’s Treasury said it will auction three-, five- and 20-year securities, without specifying the amount. German bunds were little changed. They fell earlier when a U.S. report showed employers hired more workers last month than economists forecast, damping demand for the safest assets.

“The market is getting ready for a larger-than-expected Spanish auction next week which puts pressure on the bonds,” said Gianluca Ziglio, a strategist at UBS AG in London. “They are trying to take advantage of the relatively quiet market environment.”

Spanish 10-year yields climbed seven basis points, or 0.07 percentage point, to 5.66 percent at 4:34 p.m. London time. The 5.85 percent security maturing in January 2022 fell 0.495, or 4.95 euros per 1,000-euro ($1,284) face-amount, to 101.305. The rate on the 2032 bond added 11 basis points to 6.30 percent.

Spain last sold the 2032 securities on Oct. 21, 2010, at an average yield of 4.78 percent, according to data compiled by Bloomberg. The last time the nation auctioned debt with a maturity longer than 10 years was in July 2011, when it sold 15- year bonds.

Rajoy Hesitates

Prime Minister Mariano Rajoy is hesitating in triggering European Central Bank bond purchases even as Moody’s Investors Service said last month that Spain risks being downgraded to junk unless he requests financial aid. The nation’s bonds are rated one step above non-investment grade with a negative outlook. Spanish 10-year yields climbed to a euro-era record 7.75 percent on July 25.

An index of factory output in Spain was at 43.5 last month, London-based Markit Economics said, less than the median estimate of 44.1 in a Bloomberg survey. Italy’s gauge was at 45.5, from 45.7 in September. The index for the 17-nation euro area fell to 45.4 from 46.1, snapping two months of increases. Readings below 50 indicate contraction.

“The Italian and Spanish numbers were weaker,” said Karsten Linowsky, a fixed-income strategist at Credit Suisse Group AG in Zurich. “That’s a little bit of a disappointment for the periphery.”

Payrolls Data

Bunds dropped earlier as the U.S. Labor Department said employers hired 171,000 workers in October, compared with a revised 148,000 gain the previous month. The unemployment rate climbed to 7.9 percent, from 7.8 percent in September.

“The employment data was much better than expected,” said Morten Hassing Povlsen, a senior rates analyst at Nordea Bank AB in Copenhagen. “The markets are quite happy with the data. The effect is muted because the data for Europe is weak.”

Germany’s 10-year yield was at 1.45 percent, after rising as much as four basis points to 1.49 percent. The rate will climb to 1.75 percent over the next three months, Nordea Bank predicts.

German debt returned 3.4 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish bonds also gained 3.4 percent, while Italy’s earned 17 percent.

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

Portugal’s 10-year bonds slid for a ninth straight day, with the yield climbing 26 basis points to 8.45 percent. That’s the longest losing streak since April, according to data compiled by Bloomberg.

To contact the reporters on this story: Emma Charlton in London at echarlton1@bloomberg.net; Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net

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