Spanish Bonds Fall 2nd Day as Cyprus Concern Damps Yield Demand

Spanish bonds fell for a second day as Cyprus’s banks reopened for the first time in almost two weeks amid concern fallout from its financial turmoil will spread to Europe’s other high debt and deficit nations.

Spain’s 10-year yields climbed to the highest level in three weeks after Cyprus’s Finance Ministry said controls on bank withdrawals and overseas transfers will be in force for seven days to limit capital flight. Portuguese and Irish bonds also dropped. German 10-year yields fell to the lowest in almost eight months after unemployment in the Europe’s largest economy unexpectedly increased, underpinning demand for safer assets.

“The way EU officials approached the crisis in Cyprus is having spillover to other peripheral countries,” said Alessandro Giansanti, a senior rates strategist at ING Groep NV in Amsterdam. “It becomes now highly likely that in every future bailout there will be a private-sector involvement.”

Spain’s 10-year yield rose three basis points, or 0.03 percentage point, to 5.11 percent at 11:18 a.m. London time after rising to 5.15 percent, the highest level since March 4. The 5.4 percent bond maturing in January 2023 dropped 0.23, or 2.30 euros per 1,000-euro face amount, to 102.205.

Ireland’s 10-year yield climbed two basis points to 4.28 percent and Portugal’s rose seven basis points to 6.44 percent.
Cypriot banks had been shut since March 16 when the European Union presented a plan to force losses on depositors in exchange for a 10 billion-euro ($12.8 billion) bailout. They will close at 6 p.m. local time, Yiangos Dimitriou, head of the central bank’s audit department, said yesterday in comments broadcast on state-run CyBC television.

Bloomberg

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