Spanish government bonds rose along with the securities of Europe’s most indebted nations as the euro area reported a trade surplus for November and Portuguese borrowing costs declined at a debt sale.
Spain’s 10-year yields fell toward the lowest level since 2006 and Portuguese and Greek securities both advanced amid optimism the region’s sovereign debt crisis is abating. Portugal’s 10-year yield dropped to the least since 2010 as the nation sold 1.01 billion euros ($1.37 billion) of one-year bills at the lowest rate at an auction since 2009. Germany’s benchmark 10-year bunds dropped after the country sold five-year notes.
“We’re still strongly bullish on the periphery,” said Peter Chatwell, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London, referring to the euro area’s higher-yielding securities. “Over the course of this year we expect peripheral spreads to continue to tighten. It’s still a buying opportunity.”
Spanish 10-year yields dropped five basis points, or 0.05 percentage point, to 3.77 percent at 4:30 p.m. London time after falling to 3.67 percent on Jan. 9, the lowest since September 2006. The 4.4 percent bond due in October 2023 rose 0.41, or 4.10 euros per 1,000-euro face amount, to 105.095. The rate has tumbled 39 basis points this year.
The euro bloc’s trade surplus expanded to 16 billion euros from a revised 14.3 billion euros in October, Eurostat said. Separate reports showed Germany’s economic growth slowed to 0.4 percent last year from 0.7 percent in 2012, while Spanish inflation held at 0.3 percent in December, down from 3 percent a year earlier.
The extra yield investors demand to hold Spain’s 10-year debt over similar-maturity German bunds shrank six basis points to 194 basis points after contracting to 175 basis points on Jan. 9, the narrowest since April 2011.
The spread will narrow to 140 basis points by year-end, Credit Agricole’s Chatwell forecasts. Even so, “there are risks of the periphery gathering a lot of momentum and overshooting that target as more investors re-enter the market,” he said.
Portugal’s 10-year bonds gained for a fifth day, with the yield falling 13 basis points to 5.16 percent, the lowest since August 2010. Similar-maturity (GGGB10YR) Greek yields dropped seven basis point to 7.75 percent.
Portugal sold the one-year bills at an average yield of 0.869 percent, the lowest since November 2009. The nation also allotted 240 million euros of three-month securities at 0.495 percent, down from 1.076 percent on Nov. 20.
The country expects to restart bond auctions in the first half of 2014, the debt agency said today. Total funding needs for this year will be about 11.8 billion euros and it has planned gross issuance of between 11 billion euros and 13 billion euros of bonds, the Lisbon-based agency said in its financing plan for 2014, published on its website.
Portugal sold five-year notes last week and 10-year bonds in May, both through banks.
Planned bond issuance for 2014 “is higher than our expectation of 7 billion euros,” Nishay Patel, a rates strategist at Citigroup Inc. in London, wrote in a note to clients. “Portugal has demonstrated that there is appetite for Portuguese government bonds across the curve.”
Volatility on French bonds was the highest in euro-area markets today, followed by those of Portugal and Ireland, according to measures of 10-year debt, the yield spread between two- and 10-year securities and credit-default swaps.
The nation allotted 4.1 billion euros of five-year notes at an average yield of 0.9 percent, the highest since Sept. 4. That compares with an average yield of 0.68 percent at a previous sale on Dec. 4.
The European Financial Stability Facility is selling 8 billion euros of five-year notes via banks today, while Spain plans to auction as much as 5.5 billion euros of bonds maturing between 2017 and 2026 tomorrow.
Spain’s bonds returned 12 percent in the 12 months through yesterday, according to Bloomberg World Bond Indexes. Germany’s earned less than 0.1 percent and Italy’s gained 6.8 percent.
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