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Spanish Bonds Rise After Debt Sale, EU Agreement on Greek Aid

Spanish bonds advanced for a third week in four as borrowing costs fell at a debt sale and after European leaders signed off on the next aid tranche for Greece, stoking optimism the euro-region debt crisis is being contained.

Greece’s 10-year debt rose for a sixth week after the nation said it had reached a deal to buy back some of its sovereign securities. Similar-maturity German bunds fell as European Union leaders approved the payout of 49.1 billion euros ($64.3 billion) of loans for Greece through March and laying the groundwork for a supra-national bank supervisor, damping demand for the safest assets. Spain sold 2.02 billion euros of government debt.

“A lot of event risks have now passed, the Italian and Spanish bond auctions have gone through without any hiccups, the Greek tranche has been signed off and that paves the way for limited event risks for the remainder of the year,” said Orlando Green, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “The periphery is on a firmer footing as a result,” he said referring to lower-rated euro-area nations.

Spanish 10-year yields slid seven basis points, or 0.07 percentage point, in the week to 5.39 percent at 5 p.m. London time yesterday. The 5.85 percent bond due January 2022 rose 0.465, or 4.65 euros per 1,000-euro face amount, to 103.225. Two-year yields fell eight basis points to 2.88 percent.

German 10-year yields climbed five basis points to 1.35 percent as demand for the region’s safest assets waned.

Rajoy Deliberations

Spain’s Prime Minister Mariano Rajoy has been keeping investors guessing since August as to whether he’ll seek a rescue that would allow the European Central Bank to buy the nation’s bonds. The Spanish Treasury has sold all the debt it planned to this year and is now building a buffer for 2013. It faces its first debt redemptions next month.

Italy’s borrowing costs also fell at a sale of three-year debt amid an easing of concern that Prime Minister Mario Monti’s resignation will lead to the return of Silvio Berlusconi. The former premier threw his week-old political comeback into doubt on Dec. 12 when he signaled he’d yield if Monti agrees to enter the election campaign as part of a coalition of “moderates.”

A report scheduled for release on Dec. 19 will show German business confidence improved for a second month in December, according to the median forecast of economists surveyed by Bloomberg News. A separate report outlining Spain’s budget balance in November is due on the following day.

German bonds returned 4.1 percent this year through Dec. 13, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish debt gained 5.2 percent and Italy’s securities earned 20 percent.

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