Spain Bonds Lose Gain in Sign Greek-Led Rally Won’t Run Smoothly

Spanish bonds swung on Tuesday, showing traders that signs of progress in Greece’s debt talks don’t mean they can relax just yet.

Spain’s 10-year securities climbed earlier amid speculation Greece is moving closer to an creditors’ accord, before giving up the gains hours later. Government bond investors will need to keep watching Greek headline as the country’s Prime Minister Alexis Tsipras’s government was given 48 hours to seal an aid deal, before a summit of European Union leaders on Thursday.

“Investors are hopeful of a deal but remain jittery, pointing to choppy trading conditions in peripherals near-term,” said Nick Stamenkovic, a fixed-income strategist at broker RIA Capital Markets Ltd. in Edinburgh.

Spain’s 10-year yield was little changed at 2.11 percent, as of 5 p.m. London time, after earlier declining as much as 11 basis points. The 1.6 percent security due April 2025 was at 95.535 percent of face value. The yield slid 16 basis points on Monday, the steepest decline since June 2014.

Germany’s 10-year bund yield fell one basis point to 0.87 percent on Tuesday after climbing 13 basis points the previous day.

That left the yield spread versus Spanish bonds at 123 basis points, after earlier dropping to as little as 113 basis points, the least since May 22. That level compares with as much as 176 basis points on June 16.

With Greece facing a June 30 deadline to make payments to creditors, bond markets were buffeted by statements from all sides about the chances of a bailout deal. The selloff in German bunds on Monday, sparked by optimism a new Greek proposal would lead to an accord, wiped out an advance from the previous week, while Spanish 10-year bonds have traded in a range of more than 10 basis points for each of the past 10 days, compared with a median of about seven in the past year.

“The path traced out for the next few weeks is messy,” Societe Generale SA analysts led by Paris-based head of European rates strategy Ciaran O’Hagan, wrote in an e-mailed note. “There is doubtless more angst ahead. But the risk of a near-term Grexit is now fast receding.”

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