Spanish Bond Yields Drop to 8-Month Low
Spain’s 10-year bond yields fell to the lowest in eight months and the rate on similar-maturity Italian debt dropped to the least since 2010, signaling the debt crisis that triggered global financial-market turmoil is easing
Italy’s benchmark bonds gained for a third day as borrowing costs declined when the nation sold 6 billion euros ($7.78 billion) of five- and 10-year debt. German bunds slipped amid speculation U.S. lawmakers are making progress to avoid the fiscal cliff, damping demand for safer assets. Spanish bonds erased gains after the nation said it would sell securities next week. Austrian and Belgium yields fell to record lows.
“Yields on benchmark 10-year maturities are falling to eight-month lows on improving prospects for the financial sector -- critical in our opinion to heralding a turning point in economic fortunes,” Andrew Wilkinson, chief economic strategist at Miller Tabak & Co. in New York, wrote in a note to clients.
Spain’s 10-year yield was little changed at 5.34 percent at 5 p.m. in London after dropping as much as 13 basis points to 5.20 percent, the lowest level since March 20. The 5.85 percent bond due in January 2022 traded at 103.61.
The Italian 10-year bond yield declined three basis points to 4.56 percent after falling to 4.47 percent, the least since December 2010.
Spanish and Italian 10-year yields have both dropped more than 1.5 percentage points since European Central Bank President Mario Draghi said in July that policy makers will do whatever is needed to preserve the euro.
“The rally in the bond markets of Italy and Spain is explained by the situation and the new policy measures announced by the ECB in July that’s still ongoing and calming down markets,” said Ralf Ahrens, who helps manage about $19 billion as head of fixed income at Frankfurt Trust and holds Spanish bonds. “The fears that Spanish government bonds could be ranked in the sub-investment grade turned out to be too early or misled. That’s the overall story why the market is friendly.”
Spain’s bonds are headed for a fourth monthly gain amid speculation Prime Minister Mariano Rajoy is taking the steps needed to stabilize the nation’s debt.
OECD Secretary General Angel Gurria said today European nations should make an “unequivocal declaration” that if Spain sought a bailout, it would be accepted.
“Spanish bonds are doing reasonably well because of the realization that the Spanish authorities are taking what they have to do quite seriously,” said Padhraic Garvey, head of developed markets debt strategy at ING Groep NV in Amsterdam. Bunds “are down on the day but that is perfectly reflective of the environment, which is positive for risky assets.”
The Spanish central bank said today the nation will sell securities maturing in 2015, 2019 and 2022 on Dec. 5.
Italy sold 3 billion euros of its benchmark 10-year bonds today at a yield of 4.45 percent, the lowest since November 2010, and down from 4.92 percent at the previous auction on Oct. 30. The Treasury also sold 3 billion euros of a 2017 bond at 3.23 percent, the lowest since October 2010.
“The Italian auction looks to have gotten away reasonably well, which is a positive, and today in general has been broadly positive,” said Brian Barry, an analyst at Investec Bank Plc in London. “It’s a long way before we call this crisis over, but in the meantime investors are more comfortable taking on peripheral risk.”
German bunds fell amid speculation U.S. lawmakers will reach agreement to avoid the so-called fiscal cliff of tax increases and spending cuts scheduled for Jan. 1
U.S. Treasury Secretary Timothy F. Geithner meets congressional leaders today after Republican House Speaker John Boehner said yesterday he was optimistic that officials can “avert this crisis sooner rather than later.”
U.S. gross domestic product grew at a 2.7 percent annual rate, up from a 2 percent prior estimate, revised figures from the Commerce Department showed today.
Germany’s 10-year yield climbed less than one basis point to 1.37 percent after rising as much as three basis points.
The Austrian 10-year yield fell to an all-time low of 1.734 percent, and Belgium’s dropped to 2.164 percent.
Volatility on Belgian bonds was the highest in developed markets today, followed by those of Portugal and Italy, according to measures of 10-year or equivalent-maturity debt, the spread between two- and 10-year securities, and credit default swaps.
Spain’s bonds returned 5.2 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Italian securities rose 20 percent and Germany’s gained 3.8 percent.