Spanish bonds fell, pushing 10-year yields to the most relative to benchmark German bunds since the euro was created, amid concern the nation’s lenders will need additional financial support to weather Europe’s debt crisis. Spain’s two-year note yield reached the highest since December after nationalized lender Bankia group said it will seek 19 billion euros ($23.9 billion) of state support. German 10-year bonds declined on opinion polls showing greater backing for Greece’s pro-bailout political parties. Italian bonds fell as business confidence slid more than economists forecast and borrowing costs rose at a sale of 3.5 billion euros of zero- coupon notes. “The weakness in Spain and Italy is primarily down to the Bankia (BKIA) rescue,� said Marc Ostwald, a fixed-income strategist at Monument Securities Ltd. in London. “The Greek polls offer some grounds for optimism but that’s a very short-termist view.� The yield on Spain’s 10-year bonds climbed 15 basis points, or 0.15 percentage point, to 6.46 percent at 11:59 a.m. London time. The 5.85 percent security maturing in January 2022 dropped 1.01, or 10.10 euros per 1,000-euro face amount, to 95.685. The Spanish-German spread expanded to as much as 513 basis points, the most since the euro’s introduction in 1999, and was last at 508 basis points. Spanish two-year note yields were nine basis points higher at 4.43 percent after reaching 4.56 percent, matching a rate last seen on Dec. 13. Spanish Banks Bankia SA shares fell 14 percent after tumbling as much as 29 percent in Madrid trading. Bankia was among three Spanish banks that had their credit ratings cut to junk by Standard & Poor’s on May 25, with the firm citing Spain’s weakening economy. Spain is considering injecting debt issued by the government or its bank-rescue fund instead of cash into the lender, an economy ministry spokesman said today. Greece’s New Democracy, which supports the European Union’s aid plan, was placed first in all six opinion polls published two days ago as campaigning continued before next month’s election, damping concern the parties opposing the plan would gain further support. The Stoxx Europe 600 index of shares rose 0.6 percent and the euro appreciated 0.6 percent to $1.2588. German 10-year yields rose two basis points to 1.39 percent after falling to 1.351 percent on May 24, the least on record. Italian two-year notes fell for a second day, pushing the yield up 17 basis points to 3.87 percent. The nation’s 10-year bond yield added three basis points to 5.70 percent. Italian Auctions Italy’s manufacturing-sentiment index dropped to 86.2, the lowest since August 2009, from a revised 89.1 in April, Rome- based national statistics institute Istat said today. Economists had predicted a reading of 88.6, according to the median of 16 estimates in a Bloomberg News survey. The nation sold notes due in May 2014 at an average yield of 4.037 percent, compared with a yield of 3.355 percent at the last auction on April 24. Investors bid for 1.66 time the securities on offer, down from a so-called bid-to-cover ratio of 1.8 last month. Italy also auctioned 751 million euros of inflation-linked debt. Irish securities were the most volatile government bonds among euro-area markets today, followed by Spain’s and Italy’s, according to measures of 10-year bonds, two- and 10-year yield spreads and credit-default swaps. The yield on Irish bonds due in October 2020 rose three basis points to 7.42 percent. German debt has returned 2.1 percent this month, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Italian securities have slipped 0.9 percent and Spanish debt dropped 2.9 percent, the indexes show. -- Editors: Paul Dobson, Nicholas Reynolds To contact the reporters on this story: David Goodman in London at dgoodman28@bloomberg.net; Keith Jenkins in London at kjenkins3@bloomberg.net To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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