Portugal-Spain 10-Year Yield Spread Shrinks to Lowest in 5 Weeks

  • Portuguese 10-year yield declines to lowest since May 3
  • Finance minister says revenue is better than expected

Portugal’s 10-year government bonds rose, narrowing the yield difference between them and similar-maturity Spanish debt to the narrowest in five weeks, highlighting the diverging political fortunes in the two nations.

Portuguese 10-year bonds climbed for a fifth day, pushing the yield to the lowest since May 3. The nation’s only investment-grade rating was retained on April 29 by DBRS Ltd., allowing the country’s debt to qualify for the European Central Bank’s asset-purchase program.

Portugal’s Finance Minister Mario Centeno said in an interview with newspaper Handelsblatt that the country’s government revenue is better than expected and this year’s budget deficit will fall. Spain is set to hold general elections on June 26 after a ballot in December failed to produce a government.

“The market was very nervous about the potential downgrade from DBRS, and the implication on eligibility for ECB buying,” said Mohit Kumar, head of rates strategy at Credit Agricole SA’s corporate and investment-banking unit in London. “The market position had become very clean going into it. Once the event risk has passed, the bid-for-yield environment is dominating again.”

“On the margin, the political outlook is playing a part” too, he said, referring to Centeno’s comments.

Portugal’s 10-year bond yield declined six basis points, or 0.06 percentage point, to 3.07 percent as of 4:11 p.m. in London, the lowest level since May 3. The 2.875 percent bond due in July 2026 rose 0.52, or 5.20 euros per 1,000-euro ($1,133) face amount, to 98.285.

The yield on similar-maturity Spanish bonds dropped three basis points to 1.57 percent, leaving the spread between the securities at 151 basis points, the lowest on a closing-price basis since April 4.

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