Spain 10-year yield shows Central Bank supremacy

Bloomberg

For Europe’s higher-yielding bonds, a political stalemate in Spain and lingering concerns about Italian banks are proving to be no impediment as investors count on support from an acceleration in buying by the European Central Bank and loose monetary policy globally.
Spain’s 10-year bond yields fell to a record low and approached 1 percent even with the country struggling to form a government after seven months of talks and two elections. Yields on similar-maturity Italian debt are set for their longest run of declines in a month.
While Spain is set to announce the target size of a bond auction scheduled for Aug. 4, and investors are also awaiting sales from Germany and France, about 57 billion ($64 billion) in interest and repayment of maturing debt this week will keep “net issuance deeply negative,” according to Commerzbank AG. ECB data on Monday may signal that the euro region’s central bank has started to front load its 80 billion-euro monthly asset-buying program before a summer lull.
“From a supply perspective, starting on Friday we’ll be in the really deep slow summer season, so there is no disturbance from that side,” said David Schnautz, a fixed-income strategist at Commerzbank in London. “Even at the lower pace due to the seasonality, the ECB will still be active. The overall trend toward more stimulus remains in place.”
The yield on Spain’s 10-year bond was little changed at 1.01 percent as of 11:02 a.m. London time, and earlier dropped to a record-low 1.003 percent. They’ve declined about 23 basis points, or 0.23 percentage point, since July 18, when yields last rose. The price of the 1.95 percent security due in April 2026 was 108.685 percent of face value. Italy’s 10-year bond yield was at 1.16 percent, little changed after three days of declines.
The positive backdrop for government bonds was reinforced with a report confirming manufacturing growth in the euro-area slowed in July in the wake of Britain’s vote in June to exit the European Union. A report later in the week will show retail sales stagnated in June, according to a Bloomberg survey of economists.