Portuguese Bonds Advance Before Notes Sale as Bunds Gain on IMFEmma Charlton and Lucy Meakin
Portugal’s 10-year bonds gained for a fifth day, extending the longest rally since November, amid speculation the country will succeed in selling notes for the first time since requesting a bailout in April 2011.
Portuguese two-year yields dropped below 3 percent, a level not seen since October 2010. Spanish securities rose after the nation’s Treasury said it aims to cover as much as 13 percent of its planned gross debt issuance for 2013 this month after a syndicated sale yesterday attracted record demand. German bunds advanced as the International Monetary Fund cut its global growth forecasts and projected a second year of contraction in the euro area, spurring demand for the region’s safest assets.
“The improvement in how peripheral debt, not only Spain and Italy, but also Ireland, has been received by the market definitely bodes well for a Portuguese syndication,” said Norbert Aul, a rates strategist at Royal Bank of Canada in London. “This is the next big step to having real primary market access.”
The yield on Portuguese 10-year bonds fell six basis points, or 0.06 percentage point, to 5.83 percent at 4:43 p.m. London time. The 4.95 percent security due October 2023 climbed 0.47, or 4.70 euros per 1,000-euro ($1,330) face amount, to 93.125. Two-year rates dropped 21 basis points to 3.06 percent, after sliding to 2.94 percent, the least since Oct. 26, 2010.
Portugal’s sale of October 2017 notes through banks may be priced to yield 395 basis points more than the mid-swap rate, according to a person familiar with the deal, who declined to be identified because the transaction hasn’t been completed.
The nation may sell as much as 2 billion euros of the notes, RBC’s Aul estimated.
Spain allotted 7 billion euros of 10-year bonds yesterday, a sale that Economy Minister Luis de Guindos said had the biggest demand in the nation’s history. Ireland sold 2.5 billion euros of bonds on Jan. 8, spurring Portugal, which requested a 78 billion-euro bailout in 2011, to achieve its goal of regaining market access by September.
“For Portugal to get back to capital markets so soon in 2013 is quite something,” Padhraic Garvey, head of developed-market debt strategy at ING Bank NV in Amsterdam, wrote in a note to clients today. “A successful tap would ease that pressure on bills, and pave the way for Portugal to ease its way back on to capital markets.”
Spanish 10-year yields fell five basis points to 5.07 percent, and the rate on the nation’s two-year notes dropped two basis points to 2.55 percent.
Germany’s 10-year bunds rose for a second day, pushing the yield down three basis points to 1.54 percent. It climbed to 1.64 percent on Jan. 18, the highest level since Oct. 18.
The world economy will expand 3.5 percent this year, less than the 3.6 percent forecast in October, the Washington-based IMF said today in an update of its World Economic Outlook report. It expects the 17-country euro area to shrink 0.2 percent in 2013, instead of growing 0.2 percent as forecast in October, as Spain leads the contraction and Germany slows.
“Is Europe on the mend? I think the answer is yes and no,” IMF Chief Economist Olivier Blanchard said in a video released with the report. “Something has to happen to start growth.”
Volatility on Greek bonds was the highest in euro-area markets today, followed by those of Finland and Austria, according to measures of 10-year or similar-maturity debt, the yield spread between two-year and 10-year securities, and credit-default swaps.
German bunds have handed investors a loss of 1.3 percent this month through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Portuguese securities returned 1.8 percent and Spanish bonds gained 1.4 percent, the indexes show.