Spain’s government bonds rose for a 10th day and the nation’s borrowing costs fell at a bill sale amid optimism the European Central Bank will limit volatility caused by a political stalemate in Italy.
The country’s 10-year securities extended their winning streak to the longest since August 2005 after Economy Minister Luis De Guindos said yesterday he expected the economy to return to growth by year-end. German bunds rose for a second day as U.K. industrial output unexpectedly declined, boosting demand for safer assets. French and Austrian securities also gained. The ECB said in September it would buy the bonds of European nations that request aid providing certain conditions are met.
“We have the ECB backstop and without it we’d be in a more volatile situation,” said Orlando Green, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “At the same time we have event risk in terms of the political level and we also have economic risk and that’s supportive of the bund and core markets in general.”
Spain’s 10-year yield dropped four basis points, or 0.04 percentage point, to 4.72 percent at 4:31 p.m. London time after falling to 4.70 percent, the lowest since November 2010. The 5.4 percent bond due in January 2023 rose 0.29, or 2.90 euros per 1,000-euro ($1,303) face amount, to 105.23.
The Madrid-based Treasury sold 5.83 billion euros of six-and 12-month bills, beating its target of 5.5 billion euros. It auctioned the six-month securities at an average yield of 0.794 percent, down from 0.859 percent on Feb. 12. The 12-month bills were allotted at 1.363 percent, versus 1.548 percent.
Spanish housing transactions climbed 18.9 percent in January from a year earlier, a government report showed today.
“Spain is looking pretty strong,” said Allan von Mehren, chief analyst at Danske Bank A/S in Copenhagen. “The underlying sentiment is positive and that’s having an impact on Spain. Italy is finding it more difficult.”
German bunds led gains among the securities of so-called core nations after the U.K. government said industrial production slid 1.2 percent from December. The median forecast in a Bloomberg News survey was for a 0.1 percent increase.
The 10-year bund yield dropped four basis points to 1.48 percent after falling to a record 1.13 percent on June 1.
The yield on French 10-year bonds declined two basis points to 2.11 percent and that on Austrian securities fell one basis points to 1.76 percent.
German Chancellor Angela Merkel’s federal government will reduce its net borrowing requirement in 2014 to the lowest in 40 years, allowing it to fulfill Europe’s fiscal compact targets early, a draft plan shows.
Net new federal borrowing, the sum of credit used to plug a budget spending gap, will drop to 6.4 billion euros, half of an earlier target, according to the budget draft that will be put to the Cabinet in Berlin tomorrow.
Germany is scheduled to sell 5 billion euros of two-year notes tomorrow. It last sold the securities on Feb. 13 at an average yield of 0.21 percent.
Italian bonds rose for the first time in three days even as borrowing costs increased at a bill sale.
The Treasury auctioned 7.75 billion euros of one-year securities at 1.28 percent, up from 1.094 percent at the previous sale on Feb. 12.
Italy’s 10-year yield fell four basis points to 4.60 percent after jumping to 4.96 percent on Feb. 27, the highest level since Nov. 15.
Italy plans to sell as much as 3.5 billion euros of three-year notes and up to 2 billion euros of 15-year bonds tomorrow. It last sold the three-year securities on Feb. 13 at 2.30 percent. The Rome-based Treasury is also scheduled to auction floating-rate notes due in 2017 and 2018.
Volatility on German bonds was the highest in euro-area markets today, followed by those of France and Belgium, according to measures of 10-year debt, the yield spread between two- and 10-year securities, and credit-default swaps.
Spanish securities returned 4.4 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Italian debt gained 0.1 percent and Germany’s fell 0.9 percent.