Spanish Yields Reach 6-Week Low on Services Data; Belgium Falls

Spain’s 10-year bond yields fell to a six-week low as a euro-area report showed a decline in services output slowed last month, adding to evidence the region is recovering and spurring demand for higher-yielding assets.

Portuguese bonds advanced for the first time in four days after Chinese manufacturing and services indexes data showed the world’s second-largest economy may be stabilizing. German 10-year bunds were little changed after yields climbed to a one-month high last week. The Netherlands sold 3.3 billion euros ($4.38 billion) of bills. France also auctioned short-dated securities. Belgium and French bonds fell.

“There was a confirmation that the situation is improving,” said Alessandro Giansanti, a senior rates strategist at ING Groep NV (INGA) in Amsterdam. “The potential growth can have a positive effect on Spanish bonds. We think spreads will continue to tighten,” he said, referring to the difference in yield compared with German bunds.

Spain’s 10-year yield rose two basis points, or 0.02 percentage point, to 4.59 percent at 2:33 p.m. London time after dropping to 4.54 percent, the lowest level since June 19. The 4.4 percent bond due in October 2023 fell 0.155, or 1.55 euros per 1,000-euro face amount, to 98.505.

Similar-maturity Portuguese bond yields decreased two basis points to 6.55 percent.

An index of activity in the services industry based on a survey of purchasing managers improved to 49.8 from 48.3 in June, London-based Markit Economics said in a report. That’s above an initial estimate of 49.6 on July 24. A reading below 50 indicates contraction.

Economic ‘Stabilization’

European Central Bank President Mario Draghi said last week that recent indicators signal the euro region is past the worst of the slump and data “tentatively confirm the expectation of a stabilization in economic activity.” Europe’s economy stagnated in the three months through June and will return to growth this quarter after six straight quarters of contraction, according to a survey of economists on July 11.

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

Belgian 10-year yields increased four basis points to 2.54 percent, while the rate on similar-maturity Dutch bonds climbed three basis points to 2.07 percent. French 10-year yields rose four basis points to 2.24 percent.

‘Illiquidity Premium’

“France and Belgium are underperforming,” said David Schnautz, a fixed-income strategist at Commerzbank AG in New York. “There’s not that much going on and liquidity conditions have worsened in the summer, so there may be an illiquidity premium on these bonds, where slightly higher yields are demanded.”

China’s non-manufacturing Purchasing Managers’ Index increased to 54.1 in July from 53.9, the first acceleration since March, government data showed Aug. 3. Readings above 50 indicate expansion.

Germany’s 10-year yield was little changed at 1.66 percent after rising to 1.73 percent on Aug. 2, the highest level since July 5.

The Netherlands auctioned 2.21 billion euros of 85-day Treasury bills at zero percent and 1.08 billion euros of 205-day securities at an average yield of 0.02 percent.

France allotted 3.99 billion euros of three-month bills at 0.043 percent, as well as a combined 3.87 billion euros of 168-and 350-day securities.

Spanish bonds returned 6.7 percent this year through Aug. 2, according to Bloomberg World Bond Indexes. Italian securities rose 3.8 percent, while German bonds lost 1.2 percent.

To contact the reporter on this story: Emma Charlton in London at echarlton1@bloomberg.net

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

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