Spanish Bonds Rise a 7th Day as RBS Sees Spread Narrowing

Spain’s 10-year bonds climbed for a seventh day, matching the longest run of gains since September, as Royal Bank of Scotland Group Plc said the rally in the securities of Europe’s most-indebted nations can extend.

RBS’s yield-spread target for Spanish and Italian bonds over benchmark German bunds has been lowered to 100 basis points from 150 basis points, strategists including London-based Harvinder Sian, wrote in a note dated March 28. That would be the lowest since May 2010, according to closing-price data compiled by Bloomberg. German bunds declined even as a report showed euro-area inflation slowed to the least since October 2009 this month.

“The number-one fixed-income trade in the world, which we hold with high conviction, remains intact -- long five- to 10-year periphery,” Andrew Roberts, head of European rates strategy at RBS in London, wrote in the note, referring to bets the prices of bonds from the euro area’s most indebted nations will rise. “We are on a revaluation process for the periphery as the market realizes they are not actually that periphery anymore.”

Spain’s 10-year bond yield fell one basis point, or 0.01 percentage point, to 3.23 percent at 10:31 a.m. London time after dropping 13 basis points in the previous six days. The 3.8 percent security due in April 2024 added 0.09, or 90 euro cents per 1,000-euro ($1,377) face-amount, to 104.86.

Inflation Slows

Spanish and Italian five-year yields dropped to records last week as investors return to the markets they shunned during the region’s debt crisis. Euro-area bonds have also been boosted by speculation that the European Central Bank will implement further stimulus measures to combat slowing inflation when it meets on April 3.

Euro-area consumer prices grew 0.5 percent in the year through March, after a 0.7 percent gain in February, the European Union’s statistics office in Luxembourg said. That missed the 0.6 percent median forecast in a Bloomberg News survey of economists. The inflation rate has been less than 1 percent for six months, while the ECB seeks to keep it at just below 2 percent.

The yield difference, or spread, between Spanish 10-year bonds and similar-maturity German bunds shrank four basis points to 165 basis points, the least since October 2010.

Spain plans to sell bonds with a maturity of more than 30 years and is studying the issuance of a 50-year security, Treasury Head Inigo Fernandez de Mesa said in an interview with Cinco Dias.

Italy’s 10-year bonds also advanced for a seventh day, matching the longest run since January. The yield slipped one basis point to 3.29 percent, reducing the spread over German bunds to 171 basis points, the least since June 2011.

Germany’s 10-year yield climbed three basis points to 1.58 percent after dropping eight basis points last week.

Spain’s bonds returned 6 percent this year through March 28, according to Bloomberg World Bond Indexes. Italian securities added 5.2 percent, and Germany’s gained 2.7 percent.

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