Spain Bonds in Longest Slump Since Draghi's `Whatever It Takes'

  • Spanish 10-year bonds decline for sixth straight day
  • Losses come even as ECB increases asset-purchase program

The last time Spain’s government bonds were on this long a losing streak, European Central Bank President Mario Draghi was just days away from pledging to do “whatever it takes” to save the euro.

The nation’s 10-year securities fell for a sixth day Thursday, the longest run since a nine-day losing streak through July 24, 2012. The following day, the yield climbed to a euro-era record 7.751 percent as concern intensified that Europe’s monetary union was on the verge of collapse. Draghi’s pledge came during a speech in London on July 26 that year, sparking a rally that culminated in Spanish 10-year yields falling to as low as 1.05 percent last year.

While yields are far below levels reached in 2012, the losing streak is emblematic of growing concerns in Europe, encompassing renewed political turmoil in Greece, weaker economic data and the U.K.’s June referendum on its European Union membership. In Spain, politicians have yet to form a government since an inconclusive election in December, and the acting administration missed its 2015 budget-deficit goal.

“Seen in the context of Greece, the broad backdrop is that political risks are back in focus and this of course raises concern,” said Michael Leister, head of rates strategy at Commerzbank AG in Frankfurt. “The deficit news undermined credibility a bit. This is clearly keeping investors on their toes.”

Yields Climb

Spain’s 10-year bond yield rose 11 basis points, or 0.11 percentage point, to 1.62 percent as of 4:05 p.m. London time. The 1.95 percent security due in April 2026 fell 0.99, or 9.90 euros per 1,000-euro ($1,139) face amount, to 103.055. The yield climbed to 1.63 percent earlier, the highest since Feb. 24.

Spain’s peers in the so-called periphery are also facing challenges. Greece and the International Monetary Fund are still “a good distance away” from an agreement that would allow for additional loans to Europe’s most-indebted state, according to the organization’s Managing Director Christine Lagarde.

Italian Treasury and central bank representatives are meeting in Rome on Thursday to discuss the creation of a state-backed fund as the country’s cooperative lenders struggle to draw private investors, while, in Portugal, BlackRock Inc. is leading a group of Novo Banco SA bondholders suing the central bank after it decided to impose losses on their securities.

Italy, Portugal

Italy’s 10-year bond yield increased 12 basis points to 1.41 percent Thursday, after reaching 1.42 percent, the highest since March 11. The yield on similar-maturity Portuguese bonds rose 24 basis points to 3.43 percent, the highest since Feb. 25. German 10-year bund yields fell three basis points to 0.09 percent.

At the same time, economic reports are also painting an increasingly bleak picture, while political disquiet is growing, with Dutch voters rejecting a EU trade agreement with Ukraine at a referendum, and Britain is poised to vote on June 23. The losses in peripheral debt are coming even as the ECB recently expanded its bond-buying program, which tends to support such securities, to 80 billion euros a month.

Spain’s bonds also fell as the nation sold about 3.8 billion euros of government debt, including the current 10-year securities.

“The peripheral selloff is intensifying after Spanish supply,” said Gianluca Ziglio, a strategist at Sunrise Brokers LLP in London. I think it “must also be related to drops in Italian bank stocks and after the Dutch ‘no’ vote on the Ukraine-EU treaty," he said.

Spain’s sovereign securities lost 0.4 percent in the week through Wednesday, according to Bloomberg World Bond Indexes, with only Greece and Portugal faring worse in the euro area. German bonds, considered to be the region’s safest debt, returned 0.4 percent.

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