Spanish Notes Trail Behind Germany’s for Second Day

Spain’s two- and five-year government notes underperformed benchmark German securities for a second day after the nation said it will sell debt due in October 2024 via banks.

The Madrid-based Treasury said it will also swap notes due in 2015 for the new bonds. Spanish 10-year yields fell to a record yesterday as a package of European Central Bank stimulus measures boosted demand for the euro region’s higher-yielding debt. Germany’s two-year notes rose for the first time in four days after the nation auctioned the securities at the lowest rate in more than a year. Italy is due to sell as much as 8.5 billion euros ($11.5 billion) of debt tomorrow.

“With Spanish yields down where they are it makes sense to do the syndicated deal and to try and retire some higher-coupon stock to lower financing costs,” said Marc Ostwald, a strategist at Monument Securities Ltd. in London. “The question is how long this can last. We’re starting to run out of juice on the peripheral rally.”

Spain’s two-year yield was little changed at 0.58 percent as of 4:40 p.m. London time after falling to a record-low 0.409 percent on June 6. The price of the 3.25 percent security due in April 2016 was 104.96. The nation’s five-year note yielded 1.29 percent.

Germany’s two-year rates declined two basis points, or 0.02 percentage point, to 0.05 percent, while the country’s five-year yield dropped two basis points to 0.41 percent.

ECB Stimulus

Higher-yielding euro-area bonds have gained since June 5 when the ECB became the first major central bank to charge fees on deposits and unveiled other plans to support an economy threatened by deflation. Policy makers led by President Mario Draghi cut the deposit rate to minus 0.1 percent, lowered the main refinancing rate to a record 0.15 percent and announced measures including targeted longer-term refinancing operations.

Germany allotted 3.42 billion euros of notes maturing in June 2016 at an average yield of 0.06 percent, the lowest since May 2013. This compares with 0.09 percent at a previous auction of two-year securities on May 14.

“The front end will continue to be supported by the current expansion of the monetary policy from the ECB,” said Alessandro Giansanti, a senior rates strategist at ING Groep NV in Amsterdam, referring to shorter-maturity notes.

Portugal’s 10-year securities were little changed after the nation held its first bond auction since exiting its three-year bailout program last month.

Portugal sold 975 million euros of debt due in February 2024 at an average yield of 3.252 percent. Portuguese 10-year bonds yielded 3.32 percent after falling to 3.23 percent yesterday, the lowest since September 2005. Benchmark German 10-year yields dropped one basis point to 1.39 percent.

Spanish securities earned 9.8 percent this year through yesterday, according to Bloomberg World Bond Indexes. Italy’s gained 8.6 percent and Germany’s earned 3.9 percent.

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