A crowded field of big-name investors bidding for around €6.5 billion ($8.84 billion) worth of Spanish home mortgages has been narrowed to two— Blackstone Group and Oaktree Capital Group, people familiar with the deal said.

The intense competition for the loan portfolio, known as Project Hercules, demonstrates the draw of Spanish real estate as low interest rates in the US and Europe send investors searching for high yields across the globe. The auction is overseen by Spain's bank-bailout fund, which manages the privatisation of lenders that were nationalised during the country's recent financial crisis and is selling some assets at deeply discounted prices.