Spain Yields Fall to 8-Year Low as Italian Debt Rallies
Spain’s bond yields dropped to an eight-year low and Italian and Greek (GGGB10YR) government securities rallied as evidence mounted the euro-area economy is improving before the European Central Bank meets tomorrow.
German bunds underperformed all their euro-zone peers as an industry report based on a survey of purchasing managers showed the region’s services and manufacturing grew more in February than initially estimated, damping demand for safer assets. Spain’s bonds were also supported as HSBC Holdings Plc recommended investors purchase the nation’s 10-year securities at an auction tomorrow.
“There’s been some better news from the euro zone and some of the PMIs were better,” said John Wraith, a fixed-income strategist at Bank of America Corp. in London. “There’s still not a great deal to shout about but the peripheral economies have still managed to turn a corner. People are still viewing yields even at these historically compressed levels as offering some value.”
Spain’s 10-year yield fell eight basis points, or 0.08 percentage point, to 3.36 percent at 4:03 p.m. in London after dropping to 3.35 percent, the lowest since January 2006. The 3.8 percent bond due in April 2024 rose 0.685, or 6.85 euros per 1,000-euro ($1,374) face amount, to 103.73.
Similar-maturity Italian yields declined five basis points to 3.37 percent after reaching 3.36 percent, the lowest since October 2005. Portugal’s 10-year yields slid 13 basis points to 4.71 percent and Greece’s fell 12 basis points to 6.81 percent.
Spanish and Italian 10-year borrowing costs have both dropped below 4 percent this year for the first time since 2010 with investors emboldened by what ECB President Mario Draghi said last month was “remarkable progress in gaining competitiveness.” Portuguese and Greek bond rates have also declined as the nations move toward exiting bailout programs introduced at the height of the regions’ debt crisis.
Markit Economics said today its index of euro-area services and manufacturing increased to 53.3 from a provisional figure of 52.7 published on Feb. 20. A level above 50 indicates growth.
ECB policy makers will keep their benchmark interest rate at a record-low 0.25 percent tomorrow, according to 40 of the 54 economists surveyed by Bloomberg News. Six forecast a reduction to 0.15 percent and eight predict a cut to 0.1 percent, the survey showed.
The Spanish Treasury is scheduled to sell bonds maturing in 2017, 2019 and 2024 tomorrow. The country paid the least since 2006 to borrow for 10 years at an auction on Feb. 20. The last time the Treasury borrowed so cheaply the economy was growing 4 percent a year, public debt was 40 percent of output and a property boom was approaching its peak. Since then Spain has suffered two recessions, pushing the public debt burden close to 100 percent and unemployment to more than 25 percent.
“Given the economic turnarounds and continued low inflation picture, we favor buying” Spanish 10-year bonds, Chris Attfield, a strategist at HSBC in London, wrote in a note to clients.
The extra yield on Spanish 10-year bonds over similar-dated German bunds shrank nine basis points to 175 basis points after contracting to 174 basis points, the narrowest since April 2011.
Portuguese (GSPT10YR) bonds rallied as debt agency head Joao Moreira Rato said the nation issued 1.2 billion euros of 2022 securities in February, and is seeking other opportunities to sell debt.
German 10-year bonds dropped for a second day with the yield rising one basis point to 1.61 percent.
Germany allotted 3.27 billion euros of notes maturing in February 2019 at an average yield of 0.64 percent, compared with 0.63 percent at the previous five-year auction on Feb. 5. The debt agency received enough bids to cover its maximum target, after failing to do so at its two previous auctions.
Spain’s securities returned 4.7 percent this year through yesterday, according to Bloomberg World Bond Indexes. Germany’s gained 2.4 percent and Italy’s rose 4.3 percent.