Spanish Bonds Fall on European Factory Output Drop

Spanish government securities declined, with the 10-year yield rising the most in a month, after the nation said it plans to sell 4.5 billion euros ($6 billion) of debt at an auction this week.

Italy’s bonds dropped after the nation announced it would sell a new 15-year benchmark security for the first time in two years. German bunds rose for the first time in three days, paring their worst start to a year since the introduction of the euro in 1999, after a report showed euro-area industrial production unexpectedly shrank in November. France sold 7 billion euros of bills.

“The market is making room for more supply from Spain and Italy,” said Peter Chatwell, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “That’s pushing their yields higher given they rallied significantly last week.”

Spanish 10-year yields rose 14 basis points, or 0.14 percentage point, to 5.03 percent at 4:31 p.m. London time. It added as much as 17 basis points, the steepest intraday gain since Dec. 10. The 5.85 percent bond due January 2022 fell 1.065, or 10.65 euros per 1,000-euro face amount, to 105.83. The yield touched 4.84 percent on Jan. 11, the lowest since March 1.

Spain will auction bonds maturing in 2015, 2018 and 2041 on Jan 17. Italy’s Rome-based Treasury will sell the new 15-year benchmark security via banks “in the near future and in relation to market conditions,” according to an e-mailed statement today.

Italian Manufacturing

The yield on 10-year Italian bonds rose seven basis points to 4.20 percent, after sliding to 4.09 percent on Jan. 11, the least since Nov. 10, 2010.

Industrial production in the 17-nation euro area dropped 0.3 percent from October, when it slid a revised 1 percent, the European Union’s statistics office in Luxembourg said today. Economists had forecast an increase of 0.2 percent, according to the median of 37 estimates in a Bloomberg News survey.

Italian industrial output fell 1 percent from October, when it dropped 1.1 percent, according to Istat, the national statistics office in Rome. The median estimate of 16 economists surveyed by Bloomberg was for a 0.2 percent decrease.

“Today’s data comes as a reminder that it may not be plain sailing,” said Elisabeth Afseth, a fixed-income analyst at Investec Bank Plc in London. “There might be a little bit of a reversal” in Italian and Spanish bonds.

German Bunds

Germany’s 10-year yield fell three basis points to 1.55 percent after rising to 1.61 percent on Jan. 11, the highest level since Oct. 25. German bonds dropped 1.7 percent this year through Jan. 11, according to indexes compiled by Bank of America Merrill Lynch.

France auctioned 1.4 billion euros of 147-day bills at an average yield of 0.017 percent. It last sold similar-maturity debt at a positive yield on July 23, according to a history of six-month yields at auction compiled by Bloomberg.

French two-year yields were little changed at 0.17 percent.

Spanish debt has returned 2.3 percent this month through Jan. 11, according to indexes compiled by Bloomberg and European Federation of Financial Analysts Societies. French debt dropped 1.2 percent, while Italian bonds gained 2.2 percent.

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