Spanish Bonds Fall 3rd Day Amid Debt Sale; Italy Securities Drop

Spanish government bonds fell for a third day as the nation sold 4 billion euros ($5.4 billion) of a new 30-year (GSPG10YR) security via banks, its first offering of the maturity since March.

Italy’s bonds also declined as the nation sold 5 billion euros of seven-year notes through banks, with auctions for another 6 billion euros of securities scheduled for this week. German bunds were little changed as U.S. lawmakers remained deadlocked over the nation’s debt ceiling.

“The increase in long-dated Spanish bond yields is linked primarily to new 30-year supply,” said Peter Chatwell, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “Spain’s 30-year debt was already looking slightly cheap before the supply announcement. There should be enough demand out there for the market to take down this supply without a problem.”

Spain’s 10-year yield increased four basis points, or 0.04 percentage point, to 4.33 percent at 4:58 p.m. London time after rising to 4.34 percent, the highest since Sept. 30. The 4.4 percent bond due in October 2023 fell 0.29, or 2.90 euros per 1,000-euro face amount, to 100.545.

The 30-year yield rose two basis points to 5.10 percent after rising as much as three basis points.

The October 2044 bonds were sold to yield 250 basis points more than the mid-swap rate.

Italian Sale

Italy’s seven-year notes being sold through banks today have been priced to yield 10 basis points more than the nation’s bonds maturing in March 2021. The nation is also scheduled to auction securities maturing between 2016 and 2028 on Oct. 11.

“Italian bonds are under a bit of pressure as the market appears to be making room for fresh supply,” said Luca Cazzulani, a senior fixed-income strategist at UniCredit SpA (UCG) in Milan. “The total amount of Italian supply to the market this week alone would be 11 billion euros. That is not a small amount.”

The Italian 10-year yield climbed three basis points to 4.38 percent after rising five basis points yesterday.

U.S. President Barack Obama and Republican lawmakers remained at odds over reopening the government and raising the debt ceiling. Treasury Secretary Jacob J. Lew has said Congress needs to increase the borrowing ceiling by Oct. 17 or the nation risks defaulting on its payments.

‘Some Support’

The cost of insuring German five-year bonds against default fell to an almost four-year low. Credit-default swaps on the securities dropped 1.5 basis points to 23 basis points, the lowest since December 2009. Those on similar-maturity Treasuries rose two basis points to 40 basis points, the highest since March.

“The fiscal impasse in Washington continues but we still expect a last-minute solution at this point,” UniCredit’s Cazzulani said. “In politics, you don’t budge until it’s clear you have no other choice. If this problem drags on, we are likely to see some support for German bunds.”

The 10-year bund yield was at 1.81 percent after dropping to 1.74 percent on Sept. 30, the lowest level since Aug. 13. The five-year yield was also little changed, at 0.83 percent.

Germany sold 3.3 billion euros of five-year notes today at an average yield of 0.81 percent, down from 1 percent at the previous auction on Sept. 4. Investors bid for 1.97 times the amount sold, up from 1.5 times last month.

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

Spanish bonds returned 9.3 percent this year through yesterday, according to Bloomberg World Bond Indexes. Italy’s rose 5 percent, while German bonds lost 1.8 percent.

To contact the reporters on this story: David Goodman in London at dgoodman28@bloomberg.net; Anchalee Worrachate in London at aworrachate@bloomberg.net

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

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