Spanish bonds advanced for a second day, leading gains in the region’s higher-yielding government securities, as a report showed industrial production in the euro-area rose more than economists forecast.
Spain’s securities extended gains from yesterday when European Central Bank President Mario Draghi said the country had achieved “enormous progress” in its reforms. Italy’s 10- year yields dropped to the lowest level in a week even as borrowing costs increased when the country sold 6.63 billion euros ($8.91 billion) of debt, the last auction before an election this month. German bonds fell as the country sold two- year notes and as demand for the region’s safest assets waned.
“There’s still a big grab for yield going on, which does encourage people” to purchase Italian and Spanish bonds, said Marc Ostwald, a rates strategist at Monument Securities Ltd. in London. “The spread relative to bunds is still tightening despite the supply.”
Spain’s 10-year yield fell 13 basis points, or 0.13 percentage point, to 5.20 percent at 4:37 p.m. London time, the lowest level since Feb. 1. The 5.4 percent securities due in January 2023 gained 0.97, or 9.70 euros per 1,000-euro face amount, to 101.545.
The spread over comparable German debt slipped 17 basis points to 353 basis points, after narrowing to 351 basis points, the least since Feb. 4. The Italian 10-year yield declined 12 basis points to 4.39 percent, leaving the gap with bunds at 272 basis points, from 301 basis points on Feb. 11.
Factory production in the 17-nation currency bloc rose 0.7 percent in December, after declining a revised 0.7 percent a month earlier, the European Union’s statistics office in Luxembourg said. Economists had forecast a gain of 0.2 percent, according to the median of 41 estimates in a Bloomberg survey.
The data follows separate reports this month showing economic confidence in the euro area climbed to the highest since July and manufacturing output contracted less in January than estimated.
Italy sold 3.45 billion euros of 2.75 percent notes maturing in December 2015 at an average yield of 2.3 percent, up from 1.85 percent at a previous auction on Jan. 11. It also auctioned 888 million euros of bonds due in 2040 at a yield of 5.07 percent, as well as securities maturing in 2026 and 2017.
That’s the last offering until the elections due Feb. 24-25. The country’s next bond sale is scheduled for Feb. 25, followed by an auction of bills the following day.
“The fact that yields have risen from last month can be linked, more than to the looming election, to the strength of the euro, which means reduced growth perspectives and increases the risks for countries such as Italy and Spain that are mired in a recession,” said Chiara Manenti, a fixed-income strategist at Intesa Sanpaolo SpA in Milan.
Benchmark German 10-year bund yields added four basis points to 1.67 percent, extending their advance from 1.58 percent on Feb. 8, which was the least since Jan. 25.
Germany allotted 4.3 billion euros of 0.25 percent notes due March 2015 at an average yield of 0.21 percent. It last sold two-year securities on Jan. 2 at 0.01 percent.
German government bonds handed investors a loss of 1.5 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Italian debt returned 0.6 percent and Spanish securities gained 1.5 percent.
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