April 10 (Bloomberg) -- Spanish bonds fell and German yields slid to records on concern Europe’s debt crisis is deepening and as weaker-than-forecast U.S. job growth signaled the global economic expansion may be slowing.
Ten-year German bunds, Europe’s benchmark government securities, outperformed all euro-area peers on bets that European Central Bank loans are proving insufficient to stop the crisis from spreading through the region. Spanish debt dropped for a fourth day even as the government repeated a pledge to cut the deficit. A Swiss sale of six-month bills drew a negative yield. Austria and the Netherlands sold debt, while France auctions as much as 7.8 billion euros ($10.2 billion) of bills.
“We have a renewed concern in the euro region as the debt problem hasn’t gone away despite the liquidity support from the European Central Bank,” said Vincent Chaigneau, the global head of interest-rate strategy at Societe Generale SA in Paris. “The poor non-farm payroll data out of the U.S. only exacerbated the risk-off sentiment. Peripheral bond yields are likely to continue to rise in the near term.”
Spain’s 10-year yield jumped 17 basis points to 5.92% at 12:22 p.m. London time, and rose to 5.94 percent, the highest since Dec. 12. That increased the additional yield investors demand to hold the securities over similar-maturity bunds by 21 basis points to 424 basis points. The 5.85% securities maturing in January 2022 dropped 1.22, or 12.20 euros per 1,000-euro face amount, to 99.435.
German Records
Volatility on Spanish bonds was the highest in euro-area markets followed by Germany, according to measures of 10-year bonds, two- and 10-year yield spreads and credit-default swaps. The change in the yield was twice the 90-day average.
Spanish 10-year yields have risen to the most since the ECB started providing three-year loans in December in its longer- term refinancing operations.
Germany’s 10-year yield fell five basis points to 1.684 percent, approaching its all-time low of 1.636% set on Sept. 23. The two-year note yield was little changed at 0.13% after dropping to 0.112 percent, the lowest since Bloomberg began collecting the data in 1990. The five-year yield declined as much as five basis points to 0.664 percent, also the least on record.
Spain’s government yesterday repeated its pledge to reduce the nation’s deficit to 3% of gross domestic product next year. Prime Minister Mariano Rajoy met health and education ministers to discuss spending cuts of more than 10 billion euros.
Spanish banks may need additional capital if the economy “worsens more than expected,” Bank of Spain Governor Miguel Angel Fernandez Ordonez said in Madrid today, as he said the recovery will be slow. If the economy “finally recovers, what has been done will be more than enough,” he said.
U.S. payrolls increased by 120,000 in March, the Labor Department said on April 6. That’s the fewest in five months and less than the most pessimistic forecast in a Bloomberg News survey. The U.S. economy is still “far from having fully recovered” from the financial crisis, Federal Reserve Chairman Ben S. Bernanke said in a speech yesterday.
Demand for bunds was also supported after a Chinese report showed import growth trailed forecasts, underscoring risks of a deeper slowdown in the world’s second-largest economy.
Switzerland sold 182-day government bills at an average yield of minus 0.251 percent, according to the nation’s central bank. About 710 million francs were allotted, it said.
Spread Widens
The French yield spread over bunds widened to as much as 132 basis points, from 125 basis points last week, the most since Jan. 19, before the bill sale. A report today showed French manufacturing production slid 1.2% in February, a third month of declines, the national statistics office, Insee, said in Paris.
Austrian 10-year government bonds pared declines after the nation sold 715 million euros of debt due February 2017 and 605 million euros of bonds maturing in November 2022.
The benchmark 10-year yield rose one basis point to 2.84% after climbing as much as four basis points. The five- year yield also advanced one basis point, to 1.76 percent.
German bunds returned 14% in the past year and 0.7% in 2012, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. French bonds gained 8.9% during the past 12 months, with Spanish securities returning 3.3% in the period, the indexes show. Spanish debt has lost 1% this year.
