Wednesday 22 November 2017

Spanish bonds decline after downgrade

Matthew Brown

Spanish government bonds fell after the Mediterranean nation had its credit grade lowered by Fitch Ratings at the end of last week.

The decline pushed the yield premium investors demand to hold the country’s 10-year bonds rather than German bunds to the most in more than three weeks.

Fitch downgraded Spain’s credit rating to AA+ from AAA on May 28 after European government bond markets closed.

The country has the euro area’s third-largest budget deficit. French Budget Minister Francois Baroin said that maintaining France’s AAA credit rating is a “tough objective,” Le Figaro reported yesterday, citing a television interview.

“With Spain being downgraded and these stories out of France, there is an ongoing nervousness in European bond markets,” said Michael Rottmann, head of fixed-income strategy at UniCredit SpA in Munich. “We don’t have the chance of spreads tightening from here.”

The yield on Spanish 10-year bonds rose three basis points to 4.28pc as of 8:28am in London.

The 4pc security due April 2020 fell 0.27, or 2.7 euros per 1,000-euro face amount, to €97.81. Spanish two-year yields surged 13 basis points to 2.55pc.

German government bonds were little changed, with the yield on the 10-year bund at 2.68pc.

The difference in yield between Spanish and German 10-year securities widened three basis points to 156 basis points, according to generic data compiled by Bloomberg.

French 10-year bonds were little changed, with the yield at 2.93pc.


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