LONDON: Spanish bond prices fell on Tuesday as unease over slow progress towards a possible bailout request from Madrid pushed some investors to sell, benefiting low-risk German Bunds.
The European Central Bank made a landmark pledge earlier this month to carry out unlimited purchases of bonds issued by troubled euro zone states, in what was seen a major step towards addressing the region's three-year-old debt crisis.
But a condition of the support was that a country must first make a request for aid from the region's rescue funds, and Spain has so far appeared reluctant to give up the fiscal sovereignty required under the scheme.
"We're now in a waiting game, waiting for stronger signals from Spain ... the plan will only really work if Spain signs up to some form of credit line agreement," said Rabobank senior market economist Elwin de Groot.
"The short end of the curve has already almost fully priced in this scenario, the risk there now is in the short term we see a deterioration in those markets."
Spanish debt has steadily backed off its best levels over the last week after initially rallying in all maturities - especially the short-term bonds that fall within the scope of the potential ECB buying.
Spanish two-year yields fell from around 7 percent to less than 3 percent, but have since risen and were up 6.7 basis points on the day at 3.47 percent on Tuesday.
Ten-year Spanish bond yields rose back above the 6 percent barrier on Monday and were last at 6.09 percent, as the focus remained on Madrid going into an auction of 12- and 18-month bills due around 0830 GMT.
Demand for the short-term paper was expected to be solid, supported by potential future ECB buying, but any sign of weakness would cast doubt on more difficult sales of longer-term Spanish bonds on Thursday.
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