Spain’s Bonds Rise With Italy’s as Growth Outlook Boosts Demand

Spanish bonds rose, pushing 10-year yields to a two-week low, before data that economists said will show U.S. employers added jobs last month and euro-area confidence improved, boosting demand for higher-yielding assets.

Spain’s two-year notes advanced for a fifth day as the country sold 3.52 billion euros ($4.81 billion) of three- and nine-month bills. The rate on two-year Italian debt fell to a four-month low. German government securities, perceived to be among the region’s safest assets, were little changed before the nation auctions 2 billion euros of 30-year debt tomorrow.

“People don’t perceive any kind of acute, immediate risk arising from the periphery so some investors are prepared to move money into peripheral debt because of the yield pickup it gives you,” said John Wraith, a fixed-income strategist at Bank of America Corp. in London, referring to the euro area’s lower-rated nations. “There’s a little bit of a holding pattern into the payrolls.”

Spain’s 10-year bond yields dropped four basis points, or 0.04 percentage point, to 4.24 percent at 12:12 p.m. London time after reaching 4.21 percent, the lowest since Oct. 7. The 4.4 percent security due in October 2023 rose 0.345, or 3.45 euros per 1,000-euro face amount, to 101.32. The two-year note yield decreased five basis points to 1.62 percent.

Italy’s 10-year yield fell two basis points to 4.18 percent after dropping to 4.16 percent yesterday, the lowest level since Aug. 13. The two-year note yield declined for a ninth-straight day, reaching 1.40 percent, the least since June 6.

Payrolls Data

U.S. employers added 180,000 workers in September after hiring 169,000 in August, according to the median estimate of analysts in a Bloomberg News survey. The data was originally scheduled for release on Oct. 4 and was postponed by a partial government shutdown.

Data tomorrow will show consumer confidence in the euro area improved in October, while a report on Thursday will show manufacturing and services expanded for a fourth month, according to the median estimates of economists in separate Bloomberg surveys.

Germany’s 10-year bund yielded 1.85 percent after the rate dropped to 1.82 percent on Oct. 18, the lowest since Oct. 9. The rate increased two basis points yesterday. U.S. Treasury notes with a similar maturity yielded 2.60 percent.

Spanish Bills

Spain sold nine-month bills at an average yield of 0.68 percent, down from 0.98 percent last month, and attracting bids equivalent to 2.11 times the amount allotted. It auctioned debt maturing in three months at 0.29 percent.

The country has met 92.6 percent of its planned medium- and long-term financing for 2013, the Economy Ministry said in an e-mailed statement today. The average borrowing cost for debt issued this year was at 2.58 percent on Sept. 31, compared with 3.01 percent at the end of 2012, it said.

Fixed-income assets were also supported amid speculation that the fiscal dispute that closed down the U.S. government this month will derail the economic recovery and prompt the Federal Reserve to delay reducing its monetary stimulus.

“Risk markets are consolidating ahead of today’s key delayed September U.S. employment report,” said Nick Stamenkovic, a fixed-income strategist at broker RIA Capital Markets Ltd. in Edinburgh. “The Fed is likely to sit on the sidelines in the next few months. This bodes well for risk markets and should keep Treasuries range bound.”

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

Spanish bonds returned 9.6 percent this year through yesterday, according to Bloomberg World Bond Indexes. Italian securities gained 6 percent, while Germany’s lost 1.9 percent.

Before it's here, it's on the Bloomberg Terminal.