Spanish Bonds Decline as ECB Maintains Key Rates, After Auction

Spanish bonds declined for a second day as the European Central Bank kept interest rates unchanged amid speculation policy makers will unveil no new measures to support the region’s economy.

Spain’s 10-year yield approached a six-week high as the nation sold 4.02 billion euros ($5.27 billion) of debt due between 2015 and 2023. The ECB, which is also to announce growth and inflation forecasts today, held its refinancing rate at a record-low 0.5 percent, in line with the forecast of all but two of 59 economists surveyed by Bloomberg. ECB President Mario Draghi is to hold a press conference to explain the decision at 2:30 p.m. in Frankfurt. German bonds were little changed.

“The ECB is not expected to come up with any new measures today,” said Alessandro Giansanti, a senior rates strategist at ING Groep NV in Amsterdam. “With Spain’s finances still vulnerable and the global appetite for risk appearing to be waning, Spanish bonds may come under pressure in the near term.”

Spain’s 10-year bond yield climbed two basis points, or 0.02 percentage point, to 4.46 percent at 12:56 p.m. London time. The 5.4 percent security due January 2023 fell 0.12, or 1.20 euros per 1,000-euro face amount, to 107.225. The rate climbed to 4.53 percent on June 3, the most since April 22.

The yield on 10-year Italian debt securities also rose two basis points, to 4.15 percent.

The ECB lowered its main refinancing rate by 25 basis points on May 2 and Draghi signaled then he’s prepared to cut borrowing costs again if economic data worsen. Morgan Stanley & Co. and IHS Global Insight were the only companies predicting a further quarter-point reduction today.

‘Little Action’

“There might be a lot of words and little action in this meeting,” said Niels From, chief analyst at Nordea Bank AB in Copenhagen. “The focus will be on the press conference and also on the economic forecasts. I expect a dovish tone, which will be supportive of bunds.”

Germany’s 10-year bund yielded 1.51 percent after climbing to 1.57 percent on June 3, the highest since Feb. 25.

Spain sold 1.49 billion euros of bonds due in October 2023 at an average yield of 4.517 percent. The nation first sold the October 2023 securities being offered today via banks on May 14, at a rate of 4.452 percent.

It also sold two- and three-year notes as it exceeded its 4 billion-euro pre-auction target.

France sold 7.99 billion euros of bonds maturing in 2020, 2023 and 2027.

Widening Spread

The nation’s 10-year yield rose two basis points to 2.08 percent, widening its spread with the rate on similar-maturity bunds two basis points to 57 basis points.

Investors also sold bonds in emerging markets. Hungary’s 10-year yields rose to 5.89 percent, the highest on a closing basis since April 8 as traders pared bets the nation’s central bank will continue to lower borrowing costs after 10 consecutive months of easing. Bond yields also rose in Poland, Russia and South Africa.

German bonds were little changed after a report showed the country’s factory orders fell more than economists predicted in April as Europe’s largest economy struggled to gain strength.

Orders decreased 2.3 percent from March, when they increased a revised 2.3 percent, the Economy Ministry in Berlin said today. Economists forecast a 1 percent drop, according to the median of 39 estimates in a Bloomberg News survey.

HSBC Holdings Plc said the recent rise in German bond yields is offering an opportunity to buy as 10-year rates will fall to 1.2 percent later this year.

“Growth remains weak in many of the largest economies and recovery hopes may be in vain,” wrote Steven Major, global head of fixed-income research at HSBC in London. “Back at the top of their recent range, core bonds are at attractive entry levels.”

German securities handed investors a loss of 0.7 percent this year through yesterday, according to Bloomberg World Bond Indexes. Spanish bonds returned 6.5 percent, according to a separate index.

To contact the reporters on this story: David Goodman in London at dgoodman28@bloomberg.net; Anchalee Worrachate in London at aworrachate@bloomberg.net

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

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