Spanish Bonds Rise a Fifth Day as Manufacturing Index Increases

Spain’s government bonds rose, with 10-year securities advancing for a fifth day, after an index of manufacturing in the nation increased in June more than economists forecast.

Similar-maturity Italian bonds advanced for a fourth day. European Central Bank policy makers hold their monthly meeting in Frankfurt on July 4. Germany’s government bonds were little changed as a report showed inflation in the euro area accelerated for a second month in June. The Netherlands auctioned 3.04 billion euros ($4 billion) of three- and 12-month bills and France also sold short-term debt.

“Yields in Spain and Italy are coming down again after some capitulation in risk assets,” said Allan von Mehren, chief analyst at Danske Bank A/S (DANSKE) in Copenhagen. “There are signs the fundamental situation is improving. I think the ECB is going to send a message that it is going to keep interest rates low for a very long time.”

Spain’s 10-year yield dropped 16 basis points, or 0.16 percentage point, to 4.61 percent at 4:44 p.m. London time. The rate climbed to 5.13 percent last week, the most since March 28. The 4.4 percent security due October 2023 rose 1.25, or 12.50 euros per 1,000-euro face amount, to 98.325.

Italian 10-year yields dropped 12 basis points to 4.43 percent.

An index based on a survey of purchasing managers in Spain’s manufacturing industry climbed to 50 from 48.1 in May, London-based Markit Economics said. The median estimate of 10 analysts in a Bloomberg survey called for 48.5. The index had been below the 50 level that represents the dividing line between expansion and contraction for the past 25 months, according to Markit.

Inflation Rate

The annual inflation rate in the 17-nation currency bloc rose to 1.6 percent from 1.4 percent in May, the European Union’s statistics office in Luxembourg said today, in line with the median estimate in a separate survey. A gauge of factory output in the 17-nation euro area improved more than economists forecast in June.

“The PMIs were supportive for the periphery, particularly for Spain given the 50 reading which indicates that contraction in manufacturing has halted,” said Gianluca Ziglio, executive director of fixed-income research at Sunrise Brokers LLP in London. “If the ECB does not disappoint we should end the week with lower yields.”

German 10-year yields were little changed at 1.72 percent after climbing 22 basis points in June. The rate reached 1.85 percent on June 24, the highest level since April 4, 2012.

German Repayment

Germany will repay 22 billion euros to investors this week when a 3.75 percent bond matures on July 4, according to data compiled by Bloomberg.

“There is a large bund redemption this week, which could support countries such as Italy or Spain,” said Patrick Jacq, a senior fixed-income strategist at BNP Paribas SA in Paris.

Japonica Partners & Co., the U.S. investment firm that last month said it would buy as much as 2.9 billion euros of Greece’s government debt, offered to purchase more of the bonds at a lower price amid speculation the country faces another bout of economic instability.

Japonica said it will purchase as much as 4 billion euros of Greek bonds, the Providence, Rhode Island-based firm said in a statement today. The company, run by former Goldman Sachs Group Inc. investment banker Paul Kazarian, lowered its minimum purchase price to 40 percent of the bonds’ principal amount, down from 45 percent a month ago.

Greek Yield

The yield on Greece’s bond due in February 2023 fell three basis points to 10.95 percent, up from 9.39 percent at the close on May 31, the last trading day before Japonica first announced its plans on June 3.

The Netherlands allotted 1.88 billion euros of three-month bills at an average yield of minus 0.02 percent at an auction. A negative yield means investors who hold the security until it matures will receive less than they paid to buy it. The Dutch State Treasury Agency also sold 12-month securities at 0.11 percent.

Volatility on Finnish bonds was the highest in euro-area markets today followed by those of Austria and the Netherlands, according to measures of 10-year debt, the yield spread between two- and 10-year securities, and credit-default swaps.

Spanish bonds returned 5.2 percent this year through June 28, according to Bloomberg World Bond Indexes. German securities lost 1.7 percent, the indexes show.

To contact the reporters on this story: Neal Armstrong in London at narmstrong8@bloomberg.net; David Goodman in London at dgoodman28@bloomberg.net

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

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