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Spanish Bonds Decline for Second Week on Debt Contagion Concern

Spanish bonds fell for a second week on concern European Central Bank measures to boost liquidity are proving insufficient to prevent the euro-region debt crisis from spreading.

Ten-year Spanish yields climbed to the highest since the ECB started allocating three-year loans in December even as the government passed new measures to crack down on tax fraud. Italian bonds slid for a fifth week after borrowing costs jumped at an auction. German note yields dropped to record lows.

“The same concern that people have about Spain or Italy haven’t gone away, but they just resurfaced after recent poor auctions,” said Mohit Kumar, head of European fixed-income strategy at Deutsche Bank AG in London. “Yields may have room to rise further but I see this as a correction following a rapid move down, and not a turn in sentiment.”

Spain’s 10-year bond yield climbed 19 basis points, or 0.19 percentage point, this week to 5.98 percent at 5 p.m. London time yesterday. The 5.85 percent bond maturing in January 2022 dropped 1.385, or 13.85 euros per 1,000-euro ($1,308) face amount, to 99.05.

Similar-maturity Italian yields increased seven basis points this week to 5.52 percent, while Portuguese yields climbed 32 basis points to 12.56 percent.

Spain’s government securities slid yesterday as data showed the nation’s banks increased borrowings from the ECB by almost 50 percent in March, reaching the most on record. Average net borrowings by the companies climbed to 227.6 billion euros from 152.4 billion euros in February, the Bank of Spain said.

Italy Auction

Italy’s cost of borrowing for three years rose 1.1 percentage points from a month earlier when it auctioned notes on April 12. The Treasury sold 2.88 billion euros ($3.78 billion) of the securities at 3.89 percent, up from 2.76 percent on March 14.

“A good part of the current turbulence” in debt markets “is due to Spanish contagion,” Maria Cannata, head of Italy’s debt agency, told reporters in Rome on April 11. Italy’s two-year yield has increased more than 150 basis points during the past six weeks.

The yield on Germany’s 10-year bund was little changed this week at 1.74 percent. The two-year yield dropped one basis point to 0.13 percent after declining to 0.091 percent on April 10, the lowest since Bloomberg began compiling data on the securities in 1990.

Germany will sell two-year notes on April 18, while Spain is scheduled to auction two- and 10-year debt on April 19. France plans to sell two-, three- and five-year notes and inflation-linked bonds on April 19.

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