Spanish Bonds Advance as Borrowing Costs Drop Across Euro Region

Spain’s bonds rose after the nation sold 10-year debt at the lowest yield since September 2010 as borrowing costs for governments across Europe declined on bets interest rates will stay lower for longer.

Spanish 10-year securities gained for a second day as the nation auctioned 4.71 billion euros ($6.16 billion) of debt due between 2016 and 2023, beating its target of 4.5 billion euros. France sold five-year notes at a record-low rate, while Slovenia hired banks to organize meetings with investors a day after scooping up twice its target in a domestic offering. Italian bonds erased gains as lawmakers failed to elect a successor to President Giorgio Napolitano in the first round of voting.

“It’s fairly clear that interest rates are going to be low for a very long time and yields are reacting,” said Elisabeth Afseth, a fixed-income analyst at Investec Bank Plc in London. “Spain sold debt at the lowest rate for a few years so it is all good on the government-bond side.”

Spain’s 10-year yield fell two basis points, or 0.02 percentage point, to 4.66 percent at 4:51 p.m. London time after declining to 4.61 percent, the lowest since November 2010. The 5.4 percent bond maturing in January 2023 rose 0.12, or 1.20 euros per 1,000-euro face amount, to 105.64.

The Madrid-based Treasury sold additional benchmark 10-year bonds at an average yield of 4.612 percent, compared with 4.898 percent at a previous auction of the securities on March 21. The nation also sold debt due in July 2016 and January 2018.

Falling Costs

Borrowing costs across Europe have declined since the Bank of Japan announced a 7.5 trillion yen ($76.4 billion) monthly asset-purchase plan on April 4, adding to global central bank stimulus efforts. Germany sold 10-year bonds at a record-low yield yesterday, while Italy’s costs fell as it sold 7.2 billion euros of debt on April 11.

Slovenia’s bonds surged yesterday after the sale of 18-month bills and German two-year yields fell below zero after Bundesbank President Jens Weidmann was reported by Dow Jones as saying the European Central Bank may lower interest rates if data warrants.

French bonds were little changed after today’s auction of 7.91 billion euros of notes maturing in 2015 and 2018. The five-year securities were sold at an average yield of 0.73 percent, down from 0.89 percent on March 21. France’s 10-year yield was at 1.79 percent.

Slovenia Syndication

Slovenia hired banks to organize a series of fixed-income investor meetings across a number of international financial centers from April 22, said a person who asked not to be identified because the information hasn’t been published.

Prime Minister Alenka Bratusek’s new government is seeking to convince markets Slovenia won’t follow five other euro members in seeking international assistance.

“What happened was a sharp turnaround in sentiment after the very successful T-bill auction which surprised the market,” said Michael Leister, an interest-rate strategist at Commerzbank AG in London. “The picture has improved very much. The fear of an imminent bailout has receded.”

The yield on Slovenia’s 4.625 percent bond due in September 2024 dropped five basis points to 6.33 percent after tumbling 60 basis points in the previous two days.

Presidential Vote

Italy’s bonds erased gains after the first round of voting by the 1,007 presidential electors ended in failure today, with ex-Senate Speaker Franco Marini unable to gain the necessary two-thirds majority. A second vote started at 3:30 p.m. in Rome.

The 10-year yield was little changed at 4.26 percent after falling as much as seven basis points.

German bunds erased an earlier decline as a U.S. report showed manufacturing in the Philadelphia region expanded in April at a slower pace than analysts forecast, reviving demand for the safest securities.

Germany’s 10-year bund yield was at 1.23 percent after climbing as much as three basis points.

German bonds returned 0.8 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish securities gained 5.3 percent and French debt rose 1.1 percent.

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

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