Spanish government bond yields rose close to euro-era highs on Tuesday as relief over a bailout for the country’s banks quickly turned to concern over how easily it will be able to access debt markets in the longer term.
Italian bond yields also rose before an auction on Thursday, when the Treasury may have to pay dearly to sell debt, with Sunday’s make-or-break Greek election adding to investor unease.
Markets took profit on German Bund futures after a rally on Monday, amid a bout of supply from higher rated euro zone countries this week and as the triple-A rated European Financial
Stability Facility opened order books on a 25-year bond.
But many analysts expected the Bund sell-off to be short-lived and investors to take refuge in the Bund before Sunday’s vote in Greece, which could decide the country’s future
in the euro zone.
“There was a big seller, an insurance fund, of long-end Bunds and they did it on screens. They hit three different dealers at the same time which sent us shooting down,” a trader
“But I don’t expect this to last now that (Dutch) supply is out of the way. I think we’re going to rally back up. It was something to do with asset allocation within their fund.”
The Netherlands sold 1.65 billion euros of bonds maturing in 2033. Austria sold 1 billion euros in top-ups of 2022 and 2062 bonds.
German Bund futures fell 70 ticks to 143.17, pushing yields on 10-year German debt 7.1 basis
points higher to 1.38 percent. Yields hit a record low of 1.127 percent earlier in June.
German bonds underperformed their U.S. Treasury counterparts, prompting some to question whether the Bund might lose its safe-haven appeal in difficult regional circumstances.
“Market sentiment has been very much aligned with the view that Bunds are a safe-haven and therefore when the periphery runs into more trouble, you hoover up the market,” Philip Shaw, chief economist at Investec said. “That may change and there is also a question over how low markets are willing to push Bund yields. At what stage do Bunds just simply not look like any value at all and at what stage do markets turn to Treasuries?”
Spanish yields jumped 14 bps to 6.67 percent, drawing closer to euro-era highs of 6.8 percent, and the cost of insuring Spanish debt against default rose 10 bps to a record high of 605 bps, according to Markit data. Italian bonds also came under pressure before Thursday’s debt sale in Rome, with the 10-year yield rising 8.1 bps to 6.12 percent.