Spanish Notes Rise as Italian Securities Gain on Auction Demand

Spain’s two-year notes rose, pushing yields down from a one-week high, as the Treasury sold 5.75 billion euros ($7.7 billion) of bills, exceeding the maximum target in the first auction of short-term debt this year.

Italian two-year securities gained as the Treasury conducts a sale of a new 15-year bond via banks. German bunds advanced for a second day after a government report showed the nation’s economy expanded in 2012 at the slowest pace in three years. The European Financial Stability Facility bailout fund sold 6 billion euros of seven-year bonds.

“It’s a combination of the Italian syndication going well and a decent bill result” in Spain, said Lyn Graham-Taylor, a fixed-income strategist at Rabobank International in London, referring to the advance in Spanish and Italian debt. Demand for the bonds is likely to be sustained “in the short term,” he said.

Spain’s two-year yield fell four basis points, or 0.04 percentage point, to 2.49 percent at 5 p.m. London time. The 2.75 percent security due March 2015 rose 0.08, or 80 euro cents per 1,000-euro face amount, to 100.545.

The yield on the nation’s 10-year bonds dropped one basis point to 5.02 percent.

The Spanish Treasury sold 12-month bills at an average yield of 1.472 percent, compared with 2.556 percent at a previous auction on Dec. 11. Investors bought 18-month securities at 1.687 percent, versus 2.778 percent last month. The upper goal for the auction was 5.5 billion euros.

Italian Sale

Italy is selling 6 billion euros of 15-year bonds via banks today, to be priced to yield 30 basis points more than the rate on the current benchmark, according to information from a person familiar with the offering, who asked not to be identified because terms aren’t established. The security will be set against the 4.5 percent bond due March 2026.

Italian two-year note yields dropped four basis points to 1.39 percent. The yield on 10-year securities rose two basis points to 4.22 percent, after it fell six basis points.

The EFSF said today it sold the seven-year bonds through banks after receiving 8.3 billion euros of orders. The security was sold at 29 basis points more than the mid-swap rate, a fixed-rate market benchmark, the agency said. That implied a reoffer yield for investors of 1.612 percent, it said in an e-mailed statement.

‘Relative Performance’

The German economy grew 0.7 percent in 2012, compared with 3 percent the previous year, the German Federal Statistics Office in Wiesbaden said today. The nation is due to sell 5 billion euros of a new benchmark 10-year security tomorrow.

“We expect bunds to remain underpinned for now,” said Michael Leister, a fixed-income strategist at Commerzbank AG in London. “Growth is all about relative performance these days, in particular in the euro region. The new 2023 bond being sold tomorrow should attract interest.”

Germany’s 10-year bund yield fell four basis points to 1.51 percent after dropping three basis points yesterday.

Volatility on German bonds was the highest in euro-region markets today, followed by those of the Netherlands and Finland, according to measures of 10-year or equivalent maturity debt, the yield spread between two- and 10-year debt, and credit default swaps.

German bonds handed investors a 1.5 percent loss this month through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spain’s gained 1.7 percent and those of Italy added 1.9 percent.

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