Germany’s two-year note yield dropped to the lowest in eight weeks yesterday as data revealed manufacturing in Spain and Italy contracted in October. Spanish bonds fell after the nation said a debt sale next week will include the longest maturity it has auctioned in 18 months. Bunds pared gains after hiring in the U.S. jumped more than economists predicted last month. Greece’s bonds slid as coalition government lawmakers squabbled over austerity demanded by its creditors.
“The bund market is well supported given the prevarication by the Spanish about the sovereign bailout,” said Nick Stamenkovic, a fixed-income strategist at RIA Capital Markets Ltd. in Edinburgh. “The Greek negotiations are dragging on with no sign of a solution at the moment. That’s keeping bunds pretty well underpinned in the short term.”
Germany’s 10-year bund yield dropped nine basis points, or 0.09 percentage point, this week to 1.45 percent at 5 p.m. London time yesterday. The 1.5 percent security maturing in September 2022 gained 0.79, or 7.90 euros per 1,000-euro ($1,284) face-amount, to 100.46.
Two-year yields fell five basis points from a week earlier to zero, the least since Sept. 6.
An index of factory output in Spain was at 43.5 last month, London-based Markit Economics said yesterday. The median prediction of economists was 44.1. Italy’s gauge was at 45.5, from 45.7 in September. For the 17-nation euro area, the index fell to 45.4 from 46.1 in September. That compares with an initial October estimate of 45.3 published on Oct. 24. A reading below 50 indicates contraction.
Spain’s 10-year bond yield rose seven basis points to 5.66 percent after rising 22 basis-points the previous week. The two- year yield was at 3.07 percent yesterday, down from 3.06 percent on Oct. 26.
The Iberian nation will sell a new benchmark 4.5 percent bond maturing 2018 on Nov. 8, the Treasury said yesterday. Yields on 20-year debt rose for the first time in four days yesterday, jumping 10 basis points to 6.30 percent after the government announced next week’s sales.
Prime Minister Mariano Rajoy is hesitating over triggering European Central Bank purchases of Spain’s bonds even as Moody’s Investors Service said last month the nation risks being downgraded to junk unless he requests aid. Spanish debt is rated one step above non-investment grade with a negative outlook.
Greek Prime Minister Antonis Samaras’s bid to please lenders from the European Union and International Monetary Fund with a 13.5 billion-euro austerity package and unlock funds ran into renewed obstacles this week from coalition partners. A law on state asset sales scraped through parliament, raising concerns on whether the government will be able to muster enough support to pass the measures.
Greece’s 10-year yield jumped 90 basis points this week to 18.19 percent.
German bonds returned 3.4 percent this year through Nov. 1, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish securities also gained 3.4 percent, while Italy’s debt earned 17 percent.