Spanish Bonds Drop for a Third Day Amid 4 Billion-Euro Debt Sale

Updated on
  • Nation auctions 30-year debt with lower demand, lower yield
  • Investors buy as Parliament struggles to form government

Spanish government bonds declined for a third day as the Treasury sold almost 4 billion euros ($4.5 billion) of conventional debt and investor demand fell at the auction of 30-year securities.

The Treasury allotted 648 million euros of bonds due in 2046 at an average yield of 2.115 percent, compared with 2.275 percent at a sale in July. Bidders offered to buy 1.61 times the securities sold, down from a 2.25 ratio previously. The auctions, which included 2019 and 2026 debt, came hours after Spain’s Acting Prime Minister Mariano Rajoy lost a confidence vote in Parliament, a widely predicted outcome. He faces an additional vote on Friday on whether he can start a second term.

“Supply pressure adds to the political uncertainty,” weighing on the nation’s bonds maturing in 10 years and beyond, said Elia Lattuga, a fixed-income strategist at UniCredit SpA in London. However, “there has been already some cheapening and the outcome of the first vote was expected,” he added.

Spanish politicians have struggled for eight months to form a new government, after two inconclusive elections. At the same time, the bonds have been supported by European Central Bank buying, as part of its quantitative-easing program.

The nation’s 30-year bond yield rose six basis points, or 0.06 percentage point, to 2.17 percent as of 4:45 p.m. London time. The 2.9 percent security due in October 2046 fell 1.485, or 14.85 euros per 1,000-euro face amount, to 116.115. The nation’s 10-year bond yield climbed five basis points to 1.06 percent, the highest since Aug. 4.

Italian 10-year bonds also declined.

Second Vote

Rajoy was defeated by 180 votes to 170 on Wednesday as his party’s traditional rivals, the Socialists, joined the anti-establishment group Podemos and smaller parties to block his victory. In the 350-member chamber’s vote on Friday, due at about 8 p.m. in Madrid, Rajoy will only need a simple majority, or more Yes votes than No votes, including possible abstentions.

The lower yields achieved in Thursday’s sale reflect what has happened since July, said Antoine Bouvet, a London-based rates strategist at Mizuho International Plc.

“There has been a fair amount of positive news and hope that a government will be formed,” Bouvet said. “Also in the summer, there has been very limited supply in the periphery, which has benefited these bonds.”

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