BLBG: Bunds Drop as Spain's Debt Funding Costs Fall at Auction, Euribor Rises
German bunds declined as Spain’s funding costs fell at a debt sale before the Mediterranean nation passes its most austere spending plan in three decades, sapping demand for Europe’s safest government securities.
Losses pushed the yield on the two-year note above 0.9 percent for the first time since April. The euro interbank offered rate, or Euribor, for three-month loans stayed above 1 percent, signaling greater willingness by financial institutions to lend to one another. Spanish bonds rose as the country sold 6.4 billion euros ($8.4 billion) of debt. The ZEW Center for European Economic Research said investors’ gauge of current economic conditions in Germany climbed to a three-year high.
“There is that sense of progression on the fiscal front and normalization in the money markets, so that may just be taking a bit of the shine off bonds,” said Orlando Green, assistant director of capital-markets strategy at Credit Agricole Corporate & Investment Bank in London. The ZEW’s current-conditions indicator is “slightly bullish” for economic growth, he said.
The yield on the 10-year bund, Europe’s benchmark security, increased four basis points to 2.42 percent as of 12:09 p.m. in London, and reached the highest since Sept. 21. The 2.25 percent security due September 2020 fell 0.33, or 3.3 euros per 1,000- euro face amount, to 98.50. The two-year yield was at 0.91 percent, the most since April 26.
Spanish Sale
The yield on Spanish 10-year bonds dropped one basis point to 4.02 percent, leaving the extra yield investors demand to hold the securities instead of similar bunds down four basis points to 158 basis points, near the least since Aug. 10.
Spain sold 4.18 billion euros of 12-month bills at an average yield of 1.842 percent today, compared with 1.908 percent at the last auction on Sept. 21. It sold 2.22 billion euros of 18-month bills at a yield of 2.009 percent, compared with 2.146 percent in September, the Bank of Spain said. It had set a target of 6 billion to 7 billion euros for the sale. Greece also sold bills today.
Spain’s budget will be debated in Parliament today and tomorrow and Prime Minister Jose Luis Rodriguez Zapatero secured a majority for the vote on his fiscal plan through agreements with two regional parties. The alliances also clear the way for Zapatero, who got an austerity package through Parliament in May with a one-vote margin, to overhaul the pension system and employment policies as the country emerges from the deepest recession in six decades.
To contact the reporters on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net; Lucy Meakin in London at lmeakin1@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
