Spain’s Notes Fall Fifth Day as Nation Hires Banks for Bond Sale

Spain’s government bonds fell, with two-year note prices slipping for a fifth day, as the nation hired banks to sell 10-year securities and auctioned six- and 12-month bills.

Ten-year yields rose to the highest in more than two weeks as a person familiar with the offering said Spain set the size of the 10-year sale at 7 billion euros ($9.1 billion). German bunds declined even after a report showed investor confidence improved less than economists forecast this month. The Netherlands sold 1.5 billion euros of five-year notes at a record-low yield.

“Late yesterday we got the news that Spain is going ahead with a new 10-year so obviously there’s supply concession being priced in,” said Michael Leister, an interest-rate strategist at Commerzbank AG in London. “This Spanish deal is quite a surprise so clearly this will be the focus.”

Spain’s two-year yield climbed seven basis points, or 0.07 percentage point, to 1.77 percent at 4:59 p.m. London time after rising to 1.80 percent, the highest since April 29. The price of the 2.75 percent note due in March 2015 fell 0.13, or 1.30 euros per 1,000-euro face amount, to 101.785.

The nation’s 10-year yield gained six basis points to 4.34 percent after rising to 4.37 percent, the most since April 25.

The extra yield investors demand to hold Spain’s 10-year debt instead of similar-maturity German bunds increased four basis points 297 basis points after expanding to 300 basis points, the widest since April 29.

Mandated Banks

Spain mandated Barclays Plc, CaixaBank SA, Citigroup Inc., Deutsche Bank AG, Goldman Sachs Group Inc. and Santander GBM for the bond sale, according to the person, who asked not to be identified because the terms are not set.

Spain sold one-year bills today at a yield below 1 percent for the first time since April 2010. The nation allotted 3.03 billion euros of the securities due in May 2014 at an average yield of 0.994 percent. It also sold 1.01 billion euros of six-month bills at a yield of 0.492 percent, down from 0.53 percent on April 16.

Germany’s 10-year bund yield rose two basis points to 1.37 percent after advancing to 1.39 percent on May 10, the highest since March 25.

The ZEW Center for European Economic Research said its index of German investor and analyst expectations improved to 36.4 in May from 36.3 in April. The median estimate of 38 economists in a Bloomberg News survey was for an increase to 40.

The Netherlands sold five-year notes at an average yield of 0.611 percent, the lowest for an auction of the maturity since Bloomberg started compiling the data in 2003.

Italian Debt

Italian 10-year bonds declined for a fourth day as the Bank of Italy said the country’s government debt rose to a record 2.035 trillion euros in March from 2.017 trillion euros in February. Foreign ownership of Italy’s debt increased to 35.2 percent in February from 35.1 percent in January, the central bank said in its public-finances supplement.

Italy’s bonds rallied earlier this month, pushing 10-year yields to the lowest in seven years, as the appointment of Enrico Letta as prime minister on April 27 ended a political deadlock. Italy’s 10-year yield rose four basis points to 4.01 percent today after falling to 3.68 percent on March 3, the least since February 2006.

The nation’s bonds “are pricing in a pretty good scenario for the Italian political situation,” Annalisa Piazza, a fixed-income analyst at Newedge Group, said in an interview in London with Francine Lacqua and Guy Johnson on Bloomberg Television’s “The Pulse” program. “We’ve seen some correction in the last couple of sessions, probably due to markets being increasingly worried about looser fiscal conditions in the future.”

Volatility on Greek 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.

Spanish bonds handed investors a loss of 0.5 percent this month through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Dutch securities dropped 0.7 percent and Germany’s fell 0.9 percent.