Spanish, Italian Bonds Gain as Sales Allay Funding Fears

Spanish and Italian bonds rose as debt sales this week allayed concern the nations may struggle to raise funds amid political instability before Italy goes to the polls to elect a new prime minister.

Yields on Spain’s 10-year bonds fell for the first week in five as European Central Bank President Mario Draghi said the country had achieved “enormous progress” in its reforms. Demand for the nations’ securities was also buoyed as a report showed industrial production in the euro-area rose more than economists forecast. Spain exceeded the Madrid-based Treasury’s sales target when it auctioned six- and 12-month bills on Feb. 12. Italy sold bonds on Feb. 13 in its last offering before the Feb. 24-25 elections. German bunds declined.

“The auctions went OK and didn’t cause any upset,” said Elisabeth Afseth, a fixed-income analyst at Investec Bank Plc in London. “Yields had widened out a bit, and maybe we saw a bit of buying at the back of the wider levels.”

Spain’s 10-year yield fell 17 basis points, or 0.17 percentage point, this week to 5.19 percent at 5 p.m. London time yesterday after slipping to 5.16 percent on Feb. 14, the least since Feb. 1. The 5.4 percent securities due January 2023 gained 1.29, or 12.90 euros per 1,000-euro ($1,335) face amount, to 101.57. The Italian 10-year yield declined 17 basis points to 4.38 percent.

Yield Spread

The extra yield investors demand to hold Spanish 10-year bonds instead of comparable German debt narrowed 21 basis points to 354 basis points. The so-called spread reached 348 basis points on Feb. 14, the least since Feb. 4. The Italian 10-year yield spread declined 22 basis points to 273 basis points, from 294 basis points on Feb. 8.

The euro region’s manufacturing and services industries shrank at a slower pace this month, according analysts surveyed by Bloomberg before the data is released on Feb. 21. The European Commission is scheduled to release the region’s growth forecasts the following day.

Spain and Italy’s debt declined in previous weeks as polls signaled former Italian premier Silvio Berlusconi was closing the gap on election frontrunner Pier Luigi Bersani and Spanish Prime Minister Mariano Rajoy faced opposition calls to resign over corruption allegations, which he denies.

Italian and Spanish securities held gains even as a report on Feb. 14 showed the region’s recession deepened more than economists predicted.

German government bonds handed investors a loss of 1.6 percent this year through Feb. 14, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Italian debt returned 1.2 percent and Spanish securities gained 2.2 percent.

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