BS: Spanish Bonds Head for Their Worst Week Since August
Spain’s 10-year bonds headed for their worst week since August after a government report showed the nation’s jobless rate climbed to a record.
Two-year notes also headed for a weekly decline as the data added to evidence the economy is worsening after the central bank said this week gross domestic product shrank for a fifth quarter. German bonds rallied as French household sentiment worsened, boosting demand for the region’s safest assets. Italian securities fell as the nation sold a combined 4 billion euros ($5.17 billion) of inflation-linked and zero-coupon debt.
“Contracting pressures in the economy remain persistent” in Spain, said Elwin de Groot, a senior market economist at Rabobank Nederland in Utrecht. “It will be very hard for the Spanish government to achieve its budget targets. It is likely to be negative for the bonds.”
Spain’s 10-year yield climbed 24 basis points, or 0.24 percentage point, this week to 5.61 percent at 3:04 p.m. London time, the biggest increase since the period ended Aug. 31. The 5.85 percent bond due in January 2022 dropped 1.705, or 17.05 euros per 1,000-euro face amount, to 101.685.
The two-year note yield climbed 32 basis points since Oct. 19 to 3.07 percent. Both two- and 10-year yields were little changed today.
Unemployment in Spain increased to 25.02 percent in the third quarter from 24.6 percent in the previous three months, the National Statistics Institute said in Madrid. That is the highest since at least 1976, the year after dictator Francisco Franco’s death led Spain to democracy.
Deficit Target
JPMorgan Asset Management cut its holdings of Spanish securities this week to match the benchmark used to monitor performance as El Confidencial said the nation would miss its budget-deficit target, according to Iain Stealey, a portfolio manager at the International Fixed-Income Group in London.
Stealey said in an interview yesterday that he would buy Spanish and Italian debt if Spain sought external aid.
Spanish GDP fell 0.4 percent in the three months through September from the previous quarter, the central bank said in its monthly bulletin released Oct. 23.
Spain may struggle to boost its economy as the government attempts to impose the deepest budget cuts in three decades, said Douglas Renwick, a director at Fitch Ratings in Barcelona.
“The economic impact might be worse than is currently being anticipated, that is certainly a risk,” he said in an interview on Bloomberg Television’s “On The Move” with Francine Lacqua.
U.S. Growth
Spanish 10-year bonds erased an earlier decline today after a U.S. report showed the world’s biggest economy grew more than analysts forecast in the third quarter. Gross domestic product rose at a 2 percent annual rate, after climbing 1.3 percent in the previous three months.
The yield on Spain’s 10-year bond has dropped more than 2 percentage points from a euro-era high of 7.75 percent reached on July 25. The extra yield investors demand to hold the securities instead of similar-maturity German bunds widened four basis points today to 407 basis points, still below the record 650 basis points in July.
German 10-year yields fell to the lowest level in a week after France’s national statistics office Insee said its measure of household sentiment in the nation dropped to 84 in October from 85 the previous month.
The 10-year bund yield declined five basis points to 1.54 percent after falling to 1.51 percent, the lowest since Oct. 16. French 10-year yield slipped two basis points to 2.24 percent.
Italy Auction
Italy sold 3 billion euros of zero-coupon debt maturing in September 2014 at a yield of 2.397 percent, compared with 2.532 percent at the previous auction on Sept. 25. The nation also sold a combined 1 billion euros of inflation-linked debt due in September 2021 and September 2026.
The yield on Italian 10-year bonds climbed two basis points to 4.89 percent.
Volatility on Portugal’s government bonds was the highest in the euro-region markets today, followed by the Netherlands, according to measures of 10-year or equivalent maturity debt, the spread between two- and 10-year securities, and credit default swaps.
German bonds returned 2.5 percent this year through yesterday according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spain’s securities rose 2.7 percent, and France’s gained 8.1 percent.
To contact the reporters on this story: David Goodman in London at dgoodman28@bloomberg.net; Lucy Meakin in London at lmeakin1@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
