Spanish Bonds Advance as Cypriot Banks Reopen; German Bunds Drop

Spanish and Italian bonds rose as Cypriot banks opened for the first time in almost two weeks with few signs of any capital flight after an international bailout.

German 10-year bund yields climbed from the lowest in almost eight months as the developments in Cyprus reduced demand for the region’s safest assets. The Cypriot Finance Ministry said controls on bank withdrawals and overseas transfers will be in force for seven days. Italian, Spanish and Portuguese bonds fell this week after the terms of financial support for the Mediterranean island nation included losses on some bondholders and depositors.

“In the sense that we haven’t been seeing shocking headlines on a bank run, Cyprus seems to be a bit more orderly than people had feared,” said Michael Leister, an interest-rate strategist at Commerzbank AG in London. “There’s some profit taking from investors who got the moves this week right. Bunds are still near multi-month lows so there’s still quite a lot of nervousness out there.”

Spain’s 10-year yield fell two basis points, or 0.02 percentage point, to 5.06 percent at 5 p.m. London time. The 5.4 percent bond due in January 2023 gained 0.13, or 1.30 euros per 1,000-euro ($1,282) face amount, to 102.565. The yield has climbed 21 basis points this week.

Cypriot Banks

Banks in Cyprus opened at midday local time. The central bank’s money controls include a 300-euro daily limit on withdrawals and restrictions on transfers.

“We expected much more people,” said Argyros Eraclides, manager of a Bank of Cyprus branch in the Stavrou area of Nicosia. “Fortunately there are only some people who needed cash for the day but customers reacted fantastically. We expected some people to be more aggravated.”

Germany’s 10-year yield rose two basis points to 1.29 percent after declining to 1.25 percent, the lowest level since Aug. 3. The number of people out of work in Germany rose a seasonally adjusted 13,000 to 2.94 million, the Federal Labor Agency said. Economists surveyed by Bloomberg predicted a decline of 2,000.

Italy’s 10-year yield fell two basis points to 4.76 percent, having climbed 25 basis points this week. Similar-maturity Portuguese yields were little changed at 6.37 percent today, rising 35 basis points on the week.

“The way EU officials approached the crisis in Cyprus is having spillover to other peripheral countries,” said Alessandro Giansanti, a senior rates strategist at ING Groep NV in Amsterdam. “It becomes now highly likely that in every future bailout there will be a private-sector involvement.

Volatility on Finnish bonds was the highest in euro-area markets today followed by those of Belgium and Ireland, according to measures of 10-year debt, the yield spread between two- and 10-year securities, and credit-default swaps.

Finland plans to sell a new benchmark bond in the first half of the year, most likely in April, the Treasury in Helsinki said in an e-mailed report today.

German bunds returned 0.5 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Italy’s bonds declined 0.3 percent and Spain’s gained 2.9 percent.