Spanish Bonds Decline as Advance Is Judged Excessive; Bunds Gain
Spain’s 10-year bonds fell for the first week in five as some investors judged gains that pushed yields to the least in more than two years were excessive amid concern the economy will struggle to grow.
Spain’s 10-year yields climbed after reports showed retail sales slid in January by the most on record and public-sector debt surged 20 percent last year. German bunds gained after European Union leaders on March 14 endorsed “structural” budgetary assessments, using code for granting countries such as France, Spain and Portugal extra time to bring down deficits. Italy’s bonds were little changed.
“Challenges in Spain remain in terms of the deficit, prospects for economic growth are not so positive and the high unemployment rate,” said Alessandro Giansanti, a senior rates strategist at ING Groep NV in Amsterdam. “We cannot say that Spain will easily decouple from Italy. The rally has been very strong, especially the outperformance versus Italy.”
Spain’s 10-year yield climbed 16 basis points, or 0.16 percentage point, in the week to 4.92 percent as of 4:39 p.m. London time yesterday after falling to 4.70 percent on March 12, the least since Nov. 22, 2010. The 5.4 percent bond due January 2023 fell 1.27, or 12.70 euros per 1,000-euro face amount, to 103.66.
The extra yield that investors demand to hold Spanish 10- year bonds instead of similar-maturity German bunds widened 23 basis points to 347 basis points. The so-called spread narrowed to 320 basis points on March 12, the least since March 21, 2012. Germany’s 10-year yield fell seven basis points to 1.45 percent.
Spain’s 10-year yield has dropped from a record high 7.75 percent in July, accelerated by the European Central Bank’s introduction in September of an unlimited debt-purchase program to cap borrowing costs of highly indebted euro-area nations. The Iberian nation’s borrowing costs fell at an extraordinary auction on March 14.
The sale signaled Spain had avoided contamination from the political fallout of inconclusive elections in Italy, which had forced the nation’s borrowing costs higher amid concern the stalemate would deepen the euro-area debt crisis.
The Treasury in Madrid is scheduled to sell three- and nine-month bills on March 19 and bonds maturing between 2015 and 2023 on March 21.
“Spain still has a very large yield spread, which will keep people reaching for it,” said Marc Ostwald, a senior rates strategist at Monument Securities Ltd. in London. “People managing bond portfolios are not spoiled for choice in where to pick up some yield. There is not a perception that Spain’s problems are behind it.”
German bunds may extend their advance next week as economists surveyed by Bloomberg forecast an index of economic sentiment in Europe’s largest economy will slow in March. The ZEW Center for Economic Research index of investor and analyst expectations will ease to 48.1 from a two-year high of 48.2 in February, the median of 40 economist estimates showed before the report is released on March 19.
Spanish bonds have returned 3.9 percent this year through March 14, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Italian securities gained 0.1 percent, while Germany’s fell 0.6 percent.
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