Spanish Bonds Rise as Euro-Area Slowdown Eases; Bunds Decline

Spanish government bonds rose for a third day after a survey of purchasing managers boosted optimism the region’s economy is improving, underpinning demand for higher-yielding assets.

Spain’s 10-year yields fell to the lowest level in a week as Markit Economics said its gauge of euro-area services and manufacturing improved more this month than analysts forecast. German and Dutch bunds declined as investors sold refuge assets. Portugal’s bonds dropped after the nation sold 2.5 billion euros ($3.3 billion) of five-year notes yesterday.

“The data shows an improvement in the euro area, it’s definitely positive,” said Jan von Gerich, chief analyst at Nordea Bank AB in Helsinki. “That’s one factor supporting Spanish and Italian bonds. We have seen clear signals this week that they are attracting broader interest for their bonds.”

Spain’s 10-year yield fell six basis points to 5.01 percent at 4:39 p.m. in London after dropping to 5 percent, the lowest since Jan. 17. The 5.85 percent bond due in January 2022 rose 0.415, or 4.15 euros per 1,000-euro face amount, to 105.965.

Italy’s 10-year yield dropped four basis points, or 0.04 percentage point, to 4.16 percent.

A composite index based on a survey of purchasing managers in euro-area services and manufacturing industries increased to 48.2 from 47.2 in December, London-based Markit said. Economists forecast 47.5, according to a Bloomberg News survey. A reading below 50 indicates contraction.

Conditions Improve

“With the improvement in financial-market conditions passing through to the real economy, we continue to believe that the improvement has legs,” Ken Wattret, chief euro-area economist at BNP Paribas SA in London, wrote in a note to clients. “This is supported by some of the more forward-looking aspects of the data released today.”

Germany’s 10-year bund dropped for the first time in three days, with the yield rising three basis points to 1.57 percent. Similar-maturity Dutch yields increased three basis points to 1.70 percent.

Portuguese bonds fell after the government sold securities due in October 2017 via banks yesterday at a yield of 4.891 percent. The sale attracted bids for 12 billion euros of debt, Secretary of State for Treasury Maria Luis Albuquerque said at a press conference yesterday.

Further Sales

“We’re interested in rebuilding all of Portugal’s yield curve, which will imply issuing 10-year debt at a given time and when adequate,” Albuquerque said in Lisbon.

Portugal’s five-year yield rose 11 basis points to 5 percent after falling to 4.77 percent, the lowest since December 2010. The 10-year yield climbed 18 basis points to 6 percent.

Volatility on Portuguese bonds was the highest in euro-area markets today, followed by those of France and Finland, according to measures of 10-year or similar-maturity debt, the yield spread between two-year and 10-year securities, and credit-default swaps.

Spanish government bonds have returned 1.5 percent this month through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German and Belgian bonds both fell 1.1 percent.