French Bond Yields Decline Most in 20 Years, Spanish Debt Rises on Auction
French and Spanish bonds advanced, leading gains in euro-region debt, as optimism regional leaders are moving closer to containing the debt crisis boosted demand for higher-yielding government securities.
France’s 10-year yields fell the most since 1991 as the nation sold 4.3 billion euros ($5.79 billion) of bonds due between 2017 and 2041. Spanish notes rose for a fourth day as it auctioned 3.75 billion euros of securities, the maximum target. Italy’s 10-year yields fell below 7 percent for the first time in a week as European Central Bank President Mario Draghi signaled the ECB may do more to fight the crisis as long as governments push the euro area toward a fiscal union.
“There’s a generally brighter sentiment at the moment and Spain’s was a very good auction with strong demand,” said Norbert Aul, a European rates strategist at RBC Capital Markets in London. “There’s still fuel in the tank from policy actions and the ECB will offer more next week.”
French 10-year yields dropped 30 basis points, or 0.30 percentage point, to 3.09 percent at 4:43 p.m. London time. The 3.25 percent bond due October 2021 rose 2.49, or 24.90 euros per 1,000-euro face amount, to 101.31.
Ten-year Spanish rates fell 49 basis points to 5.74 percent after falling to 5.70 percent, the lowest since Nov. 9. Similar- maturity Italian yields declined 37 basis points to 6.65 percent, dropping below the 7 percent level for the first time since Nov. 24.
France sold 10-year bonds at an average yield of 3.18 percent, down from 3.22 percent at the previous offer of the securities on Nov. 3. Investors ordered more than twice the amount on offer at Spain’s auction, as the nation paid the most since at least 2005 to borrow for five years.
“The Spanish auctions were well received with the maximum raised,” said Nick Stamenkovic, a fixed-income strategist at RIA Capital Markets Ltd. in Edinburgh. “There’s a growing feeling that European officials are beginning to grasp the severity of the situation.”
Spain’s 10-year rate has fallen almost 1 percentage point this week, after increasing more than a percentage point in the past two months as investors bet contagion from the crisis would push up the nation’s borrowing costs to unsustainable levels.
The ECB, Federal Reserve and four other central banks made it cheaper for banks to borrow dollars this week in a coordinated action to stem the global turmoil. Their announcement yesterday boosted optimism policy makers will intensify efforts to contain the crisis that began in Greece, engulfed Ireland and Portugal, and increased borrowing costs in Spain and Italy.
“A new fiscal compact” is “definitely the most important element to start restoring credibility,” ECB President Draghi said today in an address to the European Parliament in Brussels. “Other elements might follow, but the sequencing matters. It is first and foremost important to get a commonly shared fiscal compact right.”
All but one of 26 economists in a Bloomberg News survey predict the ECB will cut interest rates by a quarter-point when policy makers meet on Dec. 8.
The joint central-bank action pushed German one-year yields below zero for the first time yesterday. They climbed one basis point to 0.003 percent today, compared with an average 0.91 percent over the past year.
German bunds rose for a second day with 10-year yields declining 10 basis points to 2.18 percent.
The euro-region manufacturing industry contracted in November, data showed today. A manufacturing gauge based on a survey of purchasing managers in the 17-nation euro region fell to 46.4 from 47.1 in October, London-based Markit Economics said. A reading below 50 indicates contraction.
French-speaking Socialist Elio Di Rupo will take office next week in charge of a six-party group, political leaders said after the governing program was completed yesterday. A cut in Belgium’s credit rating by Standard & Poor’s last week triggered the final push to end the stalemate.
Ten-year Belgian bond yields declined 26 basis points to 4.75 percent.
German bonds have returned 6.5 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish bonds were little changed and French debt advanced 2.3 percent, the indexes show.
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