Spanish Bonds Decline With Italian Securities as Debt Sales Loom

Spanish government bonds fell, with 10-year debt declining for a second day, after the nation was said to be preparing to sell a new security due in 2044 via banks in the near future.

Italy’s bonds also dropped as the Finance Ministry said it plans to sell a seven-year note through banks, depending on market conditions. Germany’s bunds were little changed after a report showed exports increased in August and as U.S. lawmakers remained in a standoff over the budget. The European Stability Mechanism, the region’s permanent rescue fund, started its long-term funding program with a sale of 7 billion euros ($9.51 billion) of five-year bonds.

“The Spanish sale is interesting as it shows they are trying to lengthen the maturity of their debt,” said Marius Daheim, a senior fixed-income strategist at Bayerische Landesbank in Munich. “We’ve seen a bit of spread widening versus bunds.”

The Spanish 10-year yield climbed eight basis points, or 0.08 percentage point, to 4.29 percent at 4:48 p.m. London time after dropping to 4.10 percent on Oct. 2, the lowest level since May 9. The 4.4 percent bond due in October 2023 fell 0.685, or 6.85 euros per 1,000-euro face amount, to 100.85.

The nation’s 30-year yield increased five basis points to 5.08 percent after rising as much as eight basis points.

Spanish Sale

The Madrid-based Treasury mandated Barclays Plc, Banco Bilbao Vizcaya Argentaria SA, BNP Paribas SA, Caixabank SA, Citigroup Inc. and Banco Santander SA for the syndicated bond, which will be sold subject to market conditions, according to a person who asked not to be named because they’re not authorized to speak about it.

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

The Italian 10-year yield rose five basis points to 4.34 percent after falling to 4.27 percent on Oct. 7, the lowest since Sept. 26.

The European Stability Mechanism sold the five-year notes via banks in its first issuance of conventional bonds, it said in a statement. The securities were priced to yield one basis point less than the mid-swap rate.

‘General Weakness’

German bunds fell in earlier trading as U.S. lawmakers began taking the first steps on the path to raising the government’s debt limit, damping demand for safer assets.

Senate Democrats are planning a test vote before the end of this week on a measure that would grant President Barack Obama authority to raise the $16.7 trillion debt ceiling.

German exports increased 1 percent from July when they decreased 0.8 percent, the Federal Statistics Office said.

“There is general weakness in the fixed-income space,” said Michael Leister, a senior rates strategist at Commerzbank AG in London. “There’s some caution with the U.S. debt debate still ongoing.”

The 10-year bund yield was at 1.81 percent after climbing as much as three basis points.

The Netherlands auctioned 1.78 billion euros of notes due in January 2019 at an average yield of 1.215 percent, while Germany sold 890 million euros of inflation-linked debt due in April 2018.

Spanish bonds returned 9.7 percent this year through yesterday, according to Bloomberg World Bond Indexes. Italian securities rose 5.2 percent while German bunds lost 1.7 percent.

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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