Spanish Bonds Pare Best Week in 4 Months as Greek Talks Continue

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In a week where hopes of a deal on Greek finances have been raised and dashed repeatedly, Spanish bondholders kept faith that an agreement will be reached.

While the securities fell on Friday as negotiations between Greece and its creditors continued, Spain’s 10-year bonds posted their biggest weekly gain in four months, and German bunds declined. With the June 30 expiry of Greece’s euro-area bailout imminent, talks are set to run into the weekend, and finance chiefs reconvene Saturday for their fifth session on Greece in just over a week.

“There seems to be a consensus view that what we have seen is just a tactical back-and-forth and in the end there will be a deal,” said Marius Daheim, a senior rates strategist at SEB AB in Frankfurt. “The logic is that if a Grexit is postponed then contagion is less of a problem, so that goes to the benefit of Spain and the rest. But these are news-driven short-term moves which could reverse if something goes wrong.”

Spain’s 10-year bond yield added five basis points, or 0.05 percentage point, to 2.11 percent as of 5 p.m. London time. The yield declined 16 basis points this week, the steepest drop since Feb. 27. The 1.6 percent security due in April 2025 dropped 0.385, or 3.85 euros per 1,000-euro ($1,115) face amount, to 95.51.

Debt Crisis

Technical talks are under way in Brussels before euro-area finance ministers meet on Saturday to hammer out an agreement ending a five-month standoff with Greece. They’ll reconvene armed with a proposal by creditors to unlock as much as 15.5 billion euros and extend Greece’s program through November.

Although the talks between Greece and its creditors have whipped up intraday volatility, the moves pale compared with those at the height of the euro-area’s debt crisis. The biggest daily increase in Spanish 10-year yields over the previous two weeks was a 16 basis-point jump on June 15. In 2012, that wouldn’t have been in the top 25 worst days.

The yield on similar-maturity Italian bonds rose six basis points to 2.15 percent on Friday, still down from 2.28 percent at the end of last week. That’s the biggest drop since March.

Germany’s 10-year bund yield climbed six basis points to 0.92 percent, up 17 basis points since June 19.

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