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Spanish Bonds Drop as Rehn Says 2014 Deficit Steps Fall Short

Spanish bonds fell, with 10-year yields rising toward the highest in six weeks, as European Union Economic and Monetary Commissioner Olli Rehn said the nation’s steps to reduce its 2014 deficit are falling short.

Spanish securities led losses across the euro region after Rehn told reporters in Brussels that only the nation had the right to ask for a bailout from the European Central Bank, suggesting a request for aid will be delayed. Italy’s government securities erased gains after the nation sold 5 billion euros ($6.36 billion) of debt. Germany’s bunds were little changed as it auctioned two-year notes at a negative yield for only the second time.

“Spanish yields are moving upward,” said Morten Hassing Povlsen, a senior rates analyst at Nordea Bank AB in Copenhagen. “The Rehn comments suggest there’s no immediate decision made on Spain. The market is still very sensitive to Spanish news and the market is waiting for a request for aid.”

Spain’s 10-year yield rose nine basis points, or 0.09 percentage point, to 5.94 percent at 5 p.m. London time after climbing to 5.96 percent yesterday, the most since Oct. 1. The 5.85 percent bond due in January 2022 dropped 0.595, or 5.95 euros per 1,000-euro face amount, to 99.38.

Aid Request

A real-estate bubble that hammered the nation’s banking system has already forced Spain to tap 100 billion euros of aid for its banks, and the government is deliberating whether to call on Europe’s rescue fund to help shore up its own accounts.

Italy auctioned 3.5 billion euros of notes due in 2015 at an average yield of 2.64 percent, a two-year low. The nation also sold a total of 1.5 billion euros of 2023 and 2029 bonds, the latter being the longest maturity offered this year.

Italy’s 10-year yield was little changed at 4.96 percent after falling as much as five basis points.

Germany sold two-year notes with a negative yield, meaning investors paid for the safety of owning German debt for the second auction on record, and the first time since July.

The nation allotted 4.3 billion euros of securities maturing in December 2014 at an average yield of minus 0.02 percent, down from 0.07 percent at an auction of similar-maturity debt on Oct. 17, according to a statement from the Bundesbank today.

German Auction

The German auction result underlines investors’ “nervousness and search for safety amid risks that persist from Greece’s unresolved troubles and the impending fiscal cliff in the U.S.,” finance agency spokesman Joerg Mueller said in an interview after the auction.

The so-called fiscal cliff refers to a combined $607 billion of tax increases and spending cuts that will begin automatically in January without a change to U.S. legislation.

Germany’s 10-year bund yielded 1.34 percent, with the two-year rate at minus 0.022 percent.

Swedish bonds declined, with 10-year yields rising to the most in a week, after demand fell as the nation auctioned securities due in June 2022.

Sweden’s 10-year rate added two basis points to 1.42 percent after rising to 1.45 percent, the most since Nov. 7. The nation sold 3.5 billion kronor of the 2022 debt at an average yield of 1.44 percent.

Volatility on Spanish bonds was the highest in euro-region markets today, followed by those of Austria, according to measures of 10-year or equivalent-maturity debt, the spread between two- and 10-year securities, and credit default swaps.

German bonds returned 4.1 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Italian securities gained 17 percent and Spain’s rose 2.3 percent.

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