Spanish Bonds Slide With Stocks as Fed Taper Talk Curbs Demand

Spanish 10-year bonds had their worst week since October, sliding with stocks around the world, after Federal Reserve Chairman Ben S. Bernanke said policy makers may reduce the pace of asset purchases designed to boost growth.

Spain’s borrowing costs increased as it auctioned 4.08 billion-euro ($5.27 billion) of debt, while Italian bonds fell for a third week and Portuguese and Greek securities also tumbled. German bunds declined, pushing yields to a two-month high, as reports signaling the economic recovery is picking up pace curbed demand for the safest fixed-income assets. Bernanke told the U.S. Congress on May 22 that the central bank may begin to slow bond purchases in the next few policy meetings.

Risk aversion has had an adverse effect on the peripheral bond markets,” said Nick Stamenkovic, a fixed-income strategist at RIA Capital in Edinburgh, referring to the region’s high-debt and -deficit nations. “Fears that the Fed could start slowing the pace of quantitative easing and the significant supply we’ve had both in Spain and Italy recently have led to a little bit of a correction.”

Spain’s 10-year yields climbed 21 basis points, or 0.21 percentage point, since May 17 to 4.42 percent at 5 p.m. London time yesterday. That’s the biggest weekly increase since Oct. 26. The 5.4 percent bond due in January 2023 fell 1.755, or 17.55 euros per 1,000-euro face amount, to 107.57.

The Stoxx Europe 600 Index of European equities slid 1.7 percent in the week as data yesterday showed a jump in American durable-goods orders, adding to speculation the Fed will begin to taper stimulus measures that had helped boost markets around the world.

Economic Confidence

The Ifo institute’s German business climate index, based on a survey of 7,000 executives, climbed to 105.7 in May from 104.4 last month, a report showed yesterday. The European Commission will say on May 30 that economic confidence in the euro area improved this month, according to the median estimate in a Bloomberg survey of economists.

Germany’s 10-year bund yield rose 10 basis points in the week to 1.43 percent. It reached 1.47 percent yesterday, the highest since March 15.

Italy’s 10-year yield climbed 24 basis points to 4.14 percent. The country is scheduled to sell as much as 3.5 billion euros of conventional and inflation-linked notes on May 28. The Spanish Treasury sold five-year notes at an average yield of 3.001 percent on May 23, up from 2.789 percent at a previous auction on May 9. It also sold debt due in 2016 and 2026.

Portugal’s 10-year yield jumped 28 basis points to 5.53 percent and the rate on similar-maturity Greek debt increased 57 basis points to 8.86 percent.

Spanish government debt handed investors a loss of 0.8 percent this month through May 23, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Italian securities dropped 0.2 percent and German bonds declined 1.1 percent.

To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net; Lucy Meakin in London at lmeakin1@bloomberg.net

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

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