Spanish bonds rose, pushing the 10-year yield to the lowest in four months, after the government’s sale of debt benefited from a resurgent appetite for riskier assets in Europe’s financial markets.
The extra yield, or spread, that investors get for holding Spanish 10-year bonds instead of equivalent German debt narrowed to the least in more than a week. Spain sold securities due between 2018 and 2025, its first offering since regional elections at the weekend saw Catalonia’s separatists fall short of securing 50 percent of the vote.
The rally in Spain’s existing debt, and the response to the auction, suggest the country has moved on from the potential economic and political instability posed by the push for independence by Catalonia’s separatists. French 10-year bonds rose for a fourth day after an offering of the securities attracted the most demand since April.
“The auctions were quite encouraging” in both France and Spain, while the latter “further soothed the concerns regarding the political side,” said Michael Leister, a senior rates strategist at Commerzbank AG in Frankfurt.
As speculation builds that the European Central Bank will expand quantitative easing, “the periphery will outperform the core,” he said.
Spain’s 10-year bond yield fell seven basis points, or 0.07 percentage point, to 1.83 percent as of 4:04 p.m. London time, the lowest since May 29. The 2.15 percent security due October 2025 rose 0.595, or 5.95 euros per 1,000-euro ($1,116) face amount, to 102.94. Benchmark German bund yields dropped four basis points to 0.55 percent.
That reduced the spread between the securities to 128 basis points, the lowest since Sept. 21 and down from 139 at the end of last week.
The appetite for Spanish bonds marks a turnaround for the securities, which trailed behind their Italian counterparts before Catalan President Artur Mas, who favors breaking away from Spain, fell short in a race that he said was effectively a referendum on independence.
Spain’s 10-year securities yielded 14 basis points more than similar-maturity Italian debt on Thursday, down from 24 basis points on Sept. 25. As recently as July 16, Spain’s yield was lower than Italy’s.