Spanish Yields Drop to 6-Month Low Amid Moody’s Rating Optimism

Spain’s 10-year bond yield fell to the least in more than six months after Moody’s Investors Service kept the nation’s credit rating at investment grade, easing concern holders tracking indexes would be forced to sell the debt.

The German 10-year yield climbed to a month-high even as Prime Minister Mariano Rajoy said he’s not facing pressure to seek a sovereign bailout after meeting with European Union leaders in Brussels, damping demand for safer assets. The Iberian nation sold more than its maximum target of securities due in 2015, 2016 and 2022 at an auction on Oct. 18.

“Moody’s concluding Spain should keep its current rating has bought a lot of relief and that should provide some kind of lasting comfort to investors,” said Jamie Searle, a fixed- income strategist at Citigroup Inc. in London. “Between now and year-end the outlook has improved, thanks to the Moody’s decision.”

Spain’s 10-year bonds advanced, pushing the yield down 25 basis points to 5.37 percent at 4:44 p.m. yesterday, the biggest weekly slide since the five-days ended Sept. 7. The 5.85 percent security due January 2022 rose 1.84, or 18.40 euros per 1,000- euro face value, to 103.40.

The rate dropped to as low as 5.26 percent, the lowest since April 2.

The benchmark Spanish yield slid as much as 34 basis points on Oct. 17 after Moody’s assigned a negative outlook on its Baa3 rating, one step above junk, a day earlier. That’s the biggest intraday tumble since European Central Bank President Mario Draghi outlined details of the ECB’s bond-buying program on Sept. 6.

Yield Spread

The additional yield investors demand to hold Spain’s 10- year bonds over equivalent bunds has narrowed more than 110 basis points since Sept. 5 to 3.77 percent. ECB purchases are conditional on the nation requesting sovereign aid. Moody’s cited the willingness of the central bank to purchase Spain’s government bonds on the secondary market in its decision.

The Iberian nation is set to auction three- and six-month bills on Oct. 23, after the region of Galicia votes for its regional assembly this weekend. The Basque Country also goes to the polls, on Oct. 21.

Italy’s 10-year bond yields slid to as low as 4.70 percent yesterday, the lowest level since March 9, after the nation sold yesterday it received orders for more than 18 billion euros of retail securities, double that of its two previous offers combined. The benchmark rates lost 22 basis points in the week to 4.77 percent.

German 10-year bund yields added 15 basis points to 1.60 percent, touching 1.66 percent two days ago.

Spain’s government bonds have returned 4.1 percent this year through Oct. 18, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies, while German debt has gained 2.2 percent.