Spanish Bonds Extend Worst Week Since August as Bunds Advance
Spanish government bonds fell, with 10-year yields heading for their biggest weekly increase since August, after a report showed the nation’s jobless rate climbed to a record last quarter.
Spain’s 10-year securities declined for a second day as the data added to evidence the economy is worsening after its central bank said this week gross domestic product shrank for a fifth quarter. German bonds rallied as French household sentiment worsened and European stocks declined, boosting demand for the region’s safest assets. Italian securities fell as the nation sold a combined 4 billion euros ($5.16 billion) of inflation-linked and zero-coupon debt.
“Contracting pressures in the economy remain persistent” in Spain, said Elwin de Groot, a senior market economist at Rabobank Nederland in Utrecht. “It will be very hard for the Spanish government to achieve its budget targets. It is likely to be negative for the bonds.”
Spain’s 10-year yield climbed six basis points, or 0.06 percentage point, to 5.67 percent at 12:56 p.m. London time, having climbed 30 basis points this week, the most since the period ended Aug. 31. The 5.85 percent bond due in January 2022 fell 0.39, or 3.90 euros per 1,000-euro face amount, to 101.23.
Unemployment in Spain increased to 25.02 percent in the third quarter from 24.6 percent in the previous three months, according to the National Statistics Institute in Madrid. That is the highest since at least 1976, the year after dictator Francisco Franco’s death led Spain to democracy.
JPMorgan Asset Management’s International Fixed-Income Group cut its holdings of Spanish securities this week to match the benchmark used to monitor performance as El Confidencial reported the nation would miss its budget-deficit target, according to Iain Stealey, a portfolio manager in London.
Stealey said in an interview yesterday that he would buy Spanish and Italian debt if Spain sought external aid.
The nation’s GDP fell 0.4 percent in the three months through September from the previous quarter, the Bank of Spain said in its monthly bulletin released Oct. 23.
Spain may struggle to boost its economy as the government attempts to impose the deepest budget cuts in three decades, said Douglas Renwick, a director at Fitch Ratings in Barcelona.
“The economic impact might be worse than is currently being anticipated, that is certainly a risk,” he said in an interview on Bloomberg Television’s “On The Move” with Francine Lacqua.
The yield on Spain’s 10-year bond has dropped more than 2 percentage points from a euro-era high of 7.75 percent reached on July 25. The extra yield investors demand to hold the securities instead of similar-maturity German bunds widened 11 basis points today to 415 basis points, still below the record 650 basis points in July.
German 10-year yields fell to the lowest level in a week after France’s national statistics office Insee said its measure of household sentiment in the nation dropped to 84 in October from 85 the previous month. The Stoxx Europe 600 Index (SXXP) of shares slid 0.6 percent.
The 10-year bund yield declined six basis points to 1.52 percent after falling to 1.51 percent, the lowest since Oct. 16. French 10-year yield slipped three basis points to 2.24 percent.
Italy sold 3 billion euros of zero-coupon debt maturing in September 2014 at a yield of 2.397 percent, compared with 2.532 percent at the previous auction on Sept. 25. The nation also sold a combined 1 billion euros of inflation-linked debt due in September 2021 and September 2026.
The yield on Italian 10-year bonds climbed six basis points to 4.92 percent.
Volatility on Portugal’s government bonds was the highest in the euro-region markets today, followed by those of the Netherlands and Germany, according to measures of 10-year or equivalent maturity debt, the spread between two- and 10-year securities, and credit default swaps.
German bonds returned 2.5 percent this year through yesterday according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spain’s securities rose 2.7 percent, and France’s gained 8.1 percent.