Spanish government bonds had their worst week since August amid speculation Prime Minister Mariano Rajoy’s regional election victory last weekend gives him more room to delay seeking a bailout.
Spain’s 10-year securities snapped three weeks of gains after a government report showed the jobless rate climbed to a record in the three months through September and the central bank said gross domestic product shrank for a fifth quarter. German bunds advanced as a gauge of business confidence fell to the lowest since February 2010, spurring demand for the region’s safest securities.
“There’s now more uncertainty following the weekend’s regional elections,” said Peter Chatwell, a strategist at Credit Agricole Corporate & Investment Bank in London. “The market’s now bracing for the possibility there’s not going to be any attempt to ask for aid for another month. Uncertainty is something that a bondholder hates.”
Spain’s 10-year yield rose 22 basis points, or 0.22 percentage point, this week to 5.59 percent, the biggest increase since the five days ended Aug. 31. The 5.85 percent bond due in January 2022 fell 1.595, or 15.95 euros per 1,000-euro ($1,294) face value, to 101.795.
The extra yield investors demand to hold 10-year Spanish bonds instead of similar-maturity bunds widened 28 basis points over the week to 405 basis points. That is still down from a euro-era record 650 basis points on July 25.
Rajoy’s People’s Party extended its majority in the premier’s northwestern home region of Galicia on Oct. 21. The region was one of the first to implement an austerity program.
Unemployment rose to 25.02 percent last quarter from 24.6 percent in the previous three months, the National Statistics Institute said yesterday. Gross domestic product shrank 0.4 percent, the Bank of Spain said on Oct. 23.
The European Central Bank has offered to buy the bonds of the region’s most indebted nations to help cap borrowing costs, though only if they request assistance.
Germany’s 10-year bund yield slipped six basis points this week to 1.54 percent. The yield dropped to 1.51 percent yesterday, the lowest since Oct. 16.
“The market didn’t get the OK data it was looking for,” Credit Agricole’s Chatwell said. “That meant that core bonds got bid up.”
Spanish consumer-price inflation quickened for a fourth month in October, climbed 3.6 percent from a year earlier, according to a Bloomberg News survey before the report on Oct. 30. Prices rose at an annual pace of 3.5 percent in September.
Italy will sell a combined 7 billion euros of five- and 10-year debt on Oct. 30. On the following day, France plans to auction securities due between 2019 and 2035 and Germany sell 2 billion euros of 30-year bunds.
Spain’s government bonds have returned 2.7 percent this year through Oct. 25, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds rose 2.5 percent, and Italy’s gained 17 percent.