Spanish and Italian bonds led losses among the securities of Europe’s so-called peripheral nations as China’s manufacturing and euro-area services and factory output all contracted, sapping demand for higher-yielding assets.
Spanish five-year yields climbed the most in eight weeks as the nation’s borrowing costs increased at a 4.08 billion-euro ($5.26 billion) sale of debt maturing between 2016 and 2026. Portuguese and Greek bonds also slid as Europe’s benchmark stock index slumped 2 percent and Japan’s Topix index tumbled the most since March 2011. German bunds were little changed.
“There’s a bit of a reduction in risk appetite following the big moves down in Japanese equities, so it’s more the macro theme,” said Peter Chatwell, a senior fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “Of course, we’ve got the supply factors also.”
Spain’s five-year note yield rose 12 basis points, or 0.12 percentage point, to 3.09 percent at 4:42 p.m. London time. It advanced as much as 17 basis points, the steepest gain since March 27. The 4.5 percent bond due January 2018 fell 0.56, or 5.60 euros per 1,000-euro face amount, to 106.055.
Spanish 10-year yields climbed 11 basis points to 4.29 percent after gaining as much as 15 basis points, the most since March 18. Rates on similar-maturity Italian debt rose 12 basis points to 4.03 percent.
An index of China’s manufacturing based on a survey of purchasing managers fell to 49.6 in May from 50.4 in April, HSBC Holdings Plc and Markit Economics said. A composite index of euro-area manufacturing and services industries was 47.7 in May below the 50 level that divides contraction from expansion for a 16th month, London-based Markit Economics said.
The Stoxx Europe 600 Index of shares slid as much as 2.6 percent. Japan’s Topix Index (TPX) slumped 6.9 percent amid the highest volume on record.
The Spanish Treasury sold five-year notes at an average yield of 3.001 percent, up from 2.789 percent at a previous auction on May 9. The nation sold three-year debt at 2.442 percent, compared with 2.247 percent on May 9, and bonds due in 2026 at 4.54 percent, versus 4.336 percent on May 9.
“Despite Spain achieving its targeted issue volume this is a fairly weak auction result,” Lyn Graham-Taylor, a fixed-income strategist at Rabobank International in London, wrote in a note to clients. “Today we have seen a relatively aggressive risk-off move with Spain and Italy both widening significantly versus bunds. It appears that this risk-off is largely an equity led move.”
The extra yield, or spread, that investors get for holding Spain’s 10-year bonds instead of bunds rose 10 basis points to 285 basis points, after reaching the most since May 17. The Italian-German 10-year yield spread rose 10 basis points to 259 basis points.
Spain is considering selling 15-year bonds through banks this year as well as issuing inflation-linked and dollar-denominated debt as it seeks to tap investor demand, Deputy Treasury Head Ignacio Fernandez-Palomero Morales said yesterday.
Germany’s 10-year bund yielded 1.44 percent after dropping by the most since May 16.
Volatility on Portuguese bonds was the highest in euro-area markets today followed by those of Belgium and France, according to measures of 10-year debt, the yield spread between two- and 10-year securities, and credit-default swaps.
Spanish bonds lost 0.2 percent this month through yesterday, cutting their returns this year to 8.1 percent, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Italian debt earned 5 percent in 2013 while German bunds are little changed.