Spain’s bonds outperformed their Italian equivalents for a fourth-straight day as Goldman Sachs Group Inc. raised its forecast for growth in the Iberian nation and Societe Generale SA said it’s Europe’s “star performer.”
Spanish 10-year (GSPG10YR) securities were set for their first weekly advance this month as SocGen analysts recommended buying the debt instead of German bunds. The increased optimism about Spain’s economy, which shrank for nine consecutive quarters through June 2013, contrasts with its fortunes during the euro-area debt crisis, when concern that the currency bloc would splinter pushed borrowing costs above 7 percent.
Spain is “the star performer in Europe, and probably will remain so for a while,” Marc-Henri Thoumin, a fixed-income strategist at SocGen in London, wrote in a client note dated yesterday. Spanish bonds “should catch up further as sentiment improves,” he wrote, referring to the yield spread to bunds.
Spanish 10-year yields fell two basis points, or 0.02 percentage point, to 2.61 percent at 4:24 p.m. London time, set for a decline of 16 basis points, or 0.16 percentage point, this week. The price of the 3.8 percent security due in April 2024 rose 0.16, or 1.60 euros per 1,000-euro ($1,351) face amount to 110.12.
The Spanish economy will grow 1.2 percent this year and 1.6 percent in 2015, Goldman Sachs economists led by London-based Huw Pill wrote in a the note dated yesterday. That compares with previous predictions of 0.9 percent and 1.2 percent, respectively. The Bank of Italy forecasts Italian gross domestic product will increase 0.2 percent in 2014 and 1.3 percent next year, it said in an economic bulletin today.
Spain’s 10-year yield was 18 basis points below the rate on similar-maturity Italian debt. The spread widened two basis points today and has increased from less than 12 basis points at the end of last week. In 2012, the Spanish securities yielded as much as 116 basis points more than Italy’s.
The Spain-Germany 10-year (GDBR10) spread narrowed two basis points to 146 basis points. Investors should target the spread narrowing to 120 basis points, Thoumin wrote.