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Spanish Bonds Advance as Nation Sells Bills as Bunds Fall

Spain’s government bonds rose, with two-year yields falling toward the lowest level in two weeks, as borrowing costs declined at a 3.52 billion-euro ($4.65 billion) bills auction.

Five-year yields dropped the most in almost three weeks as the country met the maximum target the Treasury set for the last debt sale of the year. Italian 10-year bonds rose for a third day as the nation’s Senate begins discussing the government’s 2013 budget plan. Germany’s 10-year yields climbed to the highest in two weeks before a report tomorrow that economists said will show business confidence increased in December.

“Today’s Spain sale is mildly reassuring and 2012 is now done and dusted,” said Nick Stamenkovic, a strategist at RIA Capital Markets Ltd. in Edinburgh. “While the market will probably start looking ahead to next year’s sales, Spanish bonds will stay supported into the end of the year.”

Spain’s two-year yields fell four basis points, or 0.04 percentage point, to 2.86 percent at 4:40 p.m. London time. The rate dropped to 2.84 percent on Dec. 13, the lowest level since Dec. 4. The 3.3 percent security maturing in October 2014 rose 0.075, or 75 euro cents per 1,000-euro face amount, to 100.785.

The five-year yield lost 18 basis points to 4.08 percent after sliding as much as 19 basis points, the steepest decline since Nov. 28.

Spain sold three-month bills at an average yield of 1.195 percent, down from 1.254 percent at a previous auction on Nov. 27, and six-month securities at 1.609 percent, compared with 1.669 percent last month.

The yield on Italy’s 10-year bond declined 12 basis points to 4.45 percent.

Monti Resignation

Italy’s Prime Minister Mario Monti has said he will resign by the end of this week after approval of the budget law. That decision would allow President Giorgio Napolitano to dissolve parliament.

German 10-year bund yields increased four basis points to 1.42 percent, the highest since Dec. 4.

The Munich-based Ifo institute’s business climate index climbed to 102 from 101.4 in November, according to the median estimate of 43 analysts in a Bloomberg News survey.

“If Ifo is in line with market expectations tomorrow, the risk-on mode can continue to dominate,” said Patrick Jacq, a senior fixed-income strategist at BNP Paribas SA in Paris. “There may be a moderate increase in bund yields.”

Volatility on Spanish debt was the highest among euro-area nations tracked by Bloomberg, followed by those of Ireland and Austria, according to measures of 10-year bonds, two- and 10-year yield spreads and credit-default swaps.

Greece sold 1.3 billion euros of three-month bills at an average yield of 4.11 percent, down from 4.2 percent at a prior auction on Nov. 13.

German bunds returned 4 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Italian debt earned 20 percent and Spanish bonds gained 5.2 percent.

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