Spanish Yields Rise at Auction After Portuguese Government Rift

Spain’s borrowing costs rose at a bond auction in Madrid today after a Portuguese government rift sent yields spiraling across Europe’s south.

The Treasury sold 4 billion euros of debt ($5.2 billion), meeting its maximum target set for the sale. The three-year benchmark note was sold to yield 2.875 percent, up from 2.706 percent when it was last offered on June 6. A new security maturing in October 2018 yielded 3.792 percent, compared with 3.592 percent the last time a 2018 note was sold on June 20.

So-called euro region periphery government bonds slumped yesterday as investors sought safe assets after two Portuguese ministers resigned and a report showed euro-region services contracted in June. The European Central Bank’s Governing Council is meeting in Frankfurt today and President Mario Draghi will speak at 2:30 p.m. Policy makers have reiterated the central bank stands ready to act to support the euro economy.

Demand for Spain’s 2016 notes was 3.46 times the amount sold, up from 2.39 in June, while the bid-to-cover ratio was 1.71 for the 2018 securities, down from 2.15. The Treasury, which said last week it had covered 63 percent of its mid-and long-term gross funding needs for 2013, returns to the markets to sell six-month and 12-month bills on July 16.

The yield on Spain’s 10-year benchmark bond rose six basis points to 4.289 percent at 10:49 a.m. in Madrid, widening the spread with similar German maturities to 3.15 percentage points. That compares with a euro-era high of 7.75 percent on July 25, 2012, after the nation was granted a 100 billion-euro credit line to support its banks and before Draghi first pledged to do “whatever it takes” to defend the euro.

To contact the reporters on this story: Angeline Benoit in Madrid at abenoit4@bloomberg.net; Levent Kucukreisoglu in London at lkucukreisog@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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