Spanish bonds advanced, with 10-year yields dropping to the lowest in two months before reports next week that economists said will show the euro-area pulled out of recession and industrial production rose.
The nation’s benchmark securities rose for a fourth day as signs the region is emerging from a record-long recession spurred demand for higher-yielding assets. Greek securities also rose, completing a fifth weekly gain. German bonds dropped this week as investors appetite for safer assets waned. The volume of bund futures traded dropped this week as investors awaited Germany’s federal election and the Federal Reserve’s policy meeting next month.
“Sentiment toward the peripherals has improved because the economic data next week should show some improvement,” said Nick Stamenkovic, a fixed-income strategist at RIA Capital Markets Ltd. in Edinburgh, referring to the bonds of Europe’s high debt and deficit nations. “Volatility is low and the backdrop looks supportive for Spanish bonds at the moment.”
Spain’s 10-year yield fell two basis points, or 0.02 percentage point, to 4.50 percent at the 5 p.m. close in London after dropping to 4.48 percent, the lowest level since June 6. The 4.4 percent bond due October 2023 rose 0.18, or 1.80 euros per 1,000-euro ($1,333) face amount, to 99.245. The rate declined seven basis points this week.
The ZEW Center for European Economic Research will say its index of German investor and analyst expectations climbed to 39.9 for August from 36.3 a month earlier, according to a Bloomberg survey before the report is released on Aug. 13. Euro-area gross domestic product grew 0.2 percent in the three months through June, snapping six quarters of contraction, a separate survey showed before the data on Aug. 14.
Italian 10-year yields dropped one basis point to 4.19 percent. The extra yield of the securities over German bunds shrank to as little as 248 basis points, the narrowest level since May 23.
The rate on Greece’s 10-year bonds dropped four basis points to 9.72 percent, extending this week’s decline to 22 basis points.
Germany’s 10-year bund yield was little changed at 1.68 percent, having risen three basis points this week.
“Recent economic indicators out of the euro zone seem to suggest the worst might be over in terms of recession,” said Alessandro Giansanti, a senior interest-rate strategist at ING Bank NV in Amsterdam. “There is room for German bond yields to rise a bit further from here in the near term, but I don’t think investors are confident enough to really sell core assets unless we have stronger evidence on recovery.”
The Fed’s Open Market Committee holds its next policy meeting on Sept. 17-18, while the German federal election is scheduled for Sept. 22.
“Bonds are on autopilot through the summer lull and bund volumes are extremely low,” said Marius Daheim, a senior fixed-income strategist at Bayerische Landesbank in Munich. “A lot of people have decided that they want to be neutral at current levels, until they see the outcome of the German elections and what the Fed will do. As long as these things are looming, people will just stay on the sidelines.”
Volatility on Austrian securities was the highest in euro-area markets today, followed by those of Spain and Ireland, according to measures of 10-year debt, the yield spread between two- and 10-year securities, and credit-default swaps.
Spanish bonds returned 7.1 percent this year through yesterday, according to Bloomberg World Bond Indexes. Italy’s securities gained 4.2 percent, while Germany’s fell 1.4 percent.