The Spanish Treasury sold €1.99 billion worth of ten-year government bonds at an average yield of 2.967% on Thursday. Average interest in 10-year bonds (issued €1.99bn) was below 3% for the first time. Wide accumulated volume in 2014, debt market tension return and this recent €5bn extraordinary issuance, slowed down the pace. Demand for 5 and 10-year bond segments declined for the first time since April. It is the second operation executed by the Treasure this week. Last Tuesday it got €3.51bn in 3 and 9-month bills.
Since May 8, when Mr Draghi suggested the chance of a new expansive policy, peripheral bonds have gone through a seizeable advance. Spanish and Italian bonds achieved rates under 3%, benefitting from capital inflow prompted by new QE prospects. Such action should positively impact on bond prices and yield reduction.
However, MIG BANK SWISSQUOTE stated: “Investors’ perception as regards risk/return (sharp ratio) was clearly distorted as this bonds are believed to be too safe. The Euro bonds rally braked hard when rumours about Greek debt retrospective tax came up. Athens denial assuaged tensions but liquidation was unavoidable. Up to this point, we witnessed undefined risk peripheral bonds are subject to. Despite the slight backward movement, peripheral bonds rates displayed there is still appeal. Analysts points out “market seems reluctant to take positions. Even though ECB commits to a lax monetary policy, euro falls were not convincing enough yet. Indeed, 1-month volatility (3.75%9 in EUR/USD stands at the lowest level in seven years.”