Spanish Note Yields Decline to Record Lows on Debt Sale

Spain’s government bonds advanced, pushing two- and five-year yields down to records, as the nation sold debt due in 2019 at an all-time low rate.

Spanish and Portuguese bonds outperformed higher-rated peers as signs the region’s economy is recovering fueled optimism the worst of the debt crisis is over. German two-year notes rose after European Central Bank President Mario Draghi strengthened his pledge to keep interest rates low. Portugal is selling 3.25 billion euros ($4.4 billion) of five-year notes via banks. French bonds fell after a debt auction.

“The theme so far this year has been one of relative stability of core rates and a fall in peripheral rates,” said Padhraic Garvey, head of developed-market debt at ING Bank NV in Amsterdam, referring to a decline in yields on bonds from Ireland to Portugal. “We are seeing peripheral issuers coming to the market with syndicated deals or auctions and there’s very good demand. The prognosis going forward is still favorable.”

Spain’s two-year yield dropped three basis points, or 0.03 percentage points, to 1.01 percent at 5 p.m. London time after falling to 0.953 percent, the lowest since Bloomberg began collecting the data in 1993. The 3.75 percent note maturing in October 2015 rose 0.04, or 40 euro cents per 1,000-euro face amount, to 104.835.

The nation’s five-year yield declined as much as 11 basis points to 2.213 percent. The 10-year yield increased two basis points to 3.80 percent after sliding to 3.67 percent, the lowest since September 2006.

Spanish Auction

Spain allotted 3.53 billion euros of notes maturing in April 2019 at an average yield of 2.382 percent, the least on record for a five-year note. The sale attracted bids for 1.8 times the amount of securities sold, compared with 2.72 times at a previous auction on Dec. 19.

The Madrid-based Treasury also sold 1.76 billion euros of bonds due in October 2028 at an average yield of 4.192 percent.

The extra yield investors demand to hold Spain’s five-year debt over German peers narrowed three basis points to 139 basis points, the narrowest since October 2010 based on closing prices.

Germany’s two-year note yield dropped two basis points to 0.21 percent as the ECB’s Draghi said he had deliberately strengthened the wording around forward guidance in his opening comments at a press conference in Frankfurt.

‘Extended Period’

“We firmly reiterate our forward guidance that we continue to expect the key ECB interest rates to remain at present or lower levels for an extended period of time,” Draghi said.

The ECB kept its main refinancing rate at a record-low 0.25 percent today, as forecast by all 51 economists in a Bloomberg News survey before the decision.

“By beefing up the forward guidance it has lent support to core curves and as a consequence you can see yields lower,” said Richard McGuire, head of European interest-rate strategy at Rabobank International in London. “A more accommodative stance on the part of the ECB is positive not only for core but also for peripherals.”

Portugal is selling coupon-bearing bonds for the first time since May. The additional 4.75 percent notes due in June 2019 are being sold at a yield of 4.657 percent, the nation’s debt agency said in a statement.

The sale attracted about 11 billion euros of orders, Finance Minister Maria Luis Albuquerque told reporters in Lisbon. The amount raised today represents about half of the nation’s estimated funding needs for 2014.

Portugal, Italy

Portugal’s 10-year bond yield dropped two basis points to 5.39 percent after falling to 5.24 percent yesterday, the least since May 23. Similar-maturity Italian bonds erased an earlier gain, with yields rising four basis points to 3.93 percent after declining as much as five basis points.

French bonds fell as a 5 billion-euro auction of securities due in May 2024 drew the weakest demand since March 2003. The sale had a bid-to-cover ratio of 1.54, compared with 1.98 at a previous sale on Nov. 7.

France’s 10-year bond yield climbed six basis points to 2.57 percent. The rate on similar-maturity Austrian debt increased four basis points to 2.26 percent. Benchmark German bunds were little changed, leaving the 10-year yield at 1.92 percent.

Spanish and Portuguese securities returned 12 percent in the 12 months through yesterday, according to Bloomberg World Bond Indexes. German bonds lost 0.9 percent, the worst performer of 15 euro-area sovereign-debt markets tracked by the indexes.

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