Spanish Bonds Decline as Demand Falls at Debt Sale; Bunds Slide

Spain’s 10-year government bonds declined for the first time in six weeks as demand fell when the nation sold a combined 4.57 billion euros ($5.9 billion) of securities at an auction.

Spanish 10-year yields climbed to a two-week high as investors submitted bids for 1.62 times the amount of 13-year bonds sold on May 9, down from 2.85 times at the previous auction in January. The so-called bid-to-cover ratio also dropped for three- and five-year notes. Portugal’s 10-year yield slid to the least since August 2010 after the nation sold 10-year securities for the first time since its bailout in 2011. German 10-year bunds declined for a second week as stocks rose.

“The cover at the Spanish auction was a lot lower than last time,” said Marc Ostwald, a strategist at Monument Securities Ltd. in London. “People who have been chasing Spanish yields externally probably feel like they have got enough and aren’t going to chase it any further from here.”

Spain’s 10-year yield climbed 16 basis points in the week, or 0.16 percentage point, to 4.20 percent at 5 p.m. London time yesterday, after rising to 4.26 percent, the highest level since April 26. The rate increased for the first time since the period ended March 29. The 5.4 percent bond due January 2023 dropped 1.385, or 13.85 euros per 1,000-euro face amount, to 109.375.

Spanish 10-year yields fell to a three-year low of 3.94 percent on May 3, one day after the European Central Bank cut its main refinancing rate to boost growth.

Austerity Measures

Prime Minister Mariano Rajoy is seeking to end a six-year slump after implementing the toughest austerity measures in the nation’s democratic history. He won approval from the European Commission to slow cuts in the European Union’s largest budget deficit last month.

Spain is scheduled to sell bills maturing in six and 12 months on May 14. Italy plans to offer as much as 8 billion euros of government debt on May 13 after borrowing costs at a one-year bill auction fell to a record yesterday.

Portugal’s 10-year bonds advanced for a sixth week as the nation’s first 10-year sale since 2011 attracted demand for more than three times the amount the government was seeking.

“We are quite happy” with the sale, Portugal’s debt chief Joao Moreira Rato said on May 7. “We have more than 360 investors and the book was three-times oversubscribed. It was a big worry of ours to price well and to have the right size so I hope it performs in the next few weeks.”

German Economy

The nation’s 10-year yield dropped five basis points this week to 5.45 percent after falling to 5.41 percent on May 9, the least since August 2010.

A report on May 15 will show Germany’s (GDBR10) economy expanded 0.3 percent in the first quarter after contracting 0.6 percent in the final three months of 2012, according to the median estimate of 41 analysts in a Bloomberg News survey.

Germany’s 10-year bund yield climbed 14 basis points this week to 1.38 percent after climbing to 1.39 percent yesterday, the most since March 25.

Spanish bonds gained 8.3 percent this year through May 9, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bonds earned 0.7 percent, while Portuguese securities returned 6.2 percent.

To contact the reporter on this story: Neal Armstrong in London at narmstrong8@bloomberg.net

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

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