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Spanish Notes Rise on Bailout Speculation; Portugal Debt

Spain’s two-year notes advanced for the first time in four weeks amid speculation the nation was preparing to seek a sovereign bailout that will trigger European Central Bank purchases of its debt.

Spain’s 10-year yields fell the most in almost a month yesterday after the European Central Bank’s President Mario Draghi reiterated on Oct. 4 the institution is ready to start buying the bonds of indebted countries as soon as the necessary conditions are fulfilled. German bunds fell for the first time in three weeks as the ECB kept its key rate at a record-low 0.75 percent. Portugal’s 10-year bonds rose for five days, the longest streak of gains since the period ended Aug. 21, after the nation completed a debt swap.

“Markets are focused on the idea that we will see Spain ask for a bailout and this is helping the country’s bonds,” said Marius Daheim, a senior fixed-income strategist at Bayerische Landesbank in Munich. “Asking for aid would clear the way for the ECB to buy the bonds.”

Spanish two-year note yields dropped 38 basis points, or 0.38 percentage point, to 3.05 percent at 5 p.m London time yesterday. The 4.75 percent security due July 2014, climbed 0.65, or 6.50 euros per 1,000-euro ($1,305) face amount, to 102.925. Ten-year Spanish rates declined 25 basis points to 5.69 percent, and touched 5.68 percent yesterday, the least since Sept. 25.

The ECB’s plan to buy bonds, called Outright Monetary Transactions, has already lowered borrowing costs for sovereigns across Europe, Draghi said on Oct. 4 at a press conference after the central bank announced its rate decision.

Investors Reassured

Spanish bonds have returned 4.6 percent over the past three months, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies as Draghi reassured investors the central bank would provide a backstop for indebted nations. German bonds have returned 0.5 percent and Portuguese bonds have gained 12 percent over the same period, the indexes show.

“Today we are ready with our OMT,” he said. “Now it’s really in the hands of governments.” Spain’s Economy Minister Luis de Guindos said on the same day that no bailout was needed.

Portugal’s 10-year yield dropped 78 basis points over the week, the most since the five-day period ended Sept. 7, to 8.22 percent.

The nation’s debt agency, IGCP, on Oct. 3 exchanged securities maturing next year for notes due in 2015, reducing its 2013 repayment burden as it tries to regain access to long-term debt markets.

Germany’s 10-year yield climbed eight basis points to 1.52 percent. The nation plans to sell 4 billion euros of five-year notes on Oct. 10. It last sold the notes due in October 2017 on Sept. 12 at an average yield of 0.61 percent.

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