The bonds of Portugal, Ireland and Greece will fall versus benchmark German bunds after a European leaders’ agreement aimed at stamping out the region’s debt crisis failed to spur buying, according to JPMorgan Chase & Co.
Spanish and Italian bonds will fare better as investors discriminate between so-called “near peripherals” and “far peripherals,” JPMorgan analysts including New York-based chief market strategist Jan Loeys, wrote in a March 25 report.
EU leaders last week cut the startup capital for the future euro emergency aid mechanism in 2013 to 16 billion euros ($23 billion), less than the 40 billion euros foreseen in a March 21 accord, after German Chancellor Angela Merkel demanded smaller upfront payments.
“The significant EU agreements reached this month have not been enough to spark investor demand for the most troubled peripherals,” the analysts said. “Portugal is moving ever closer to an inevitable bailout, and the prospect of further major bank recapitalizations still hangs over Ireland.”
Portugal’s 10-year bonds yielded 451 basis points more than equivalent-maturity German securities as of 10:32 a.m. in London. The spread reached 484 basis points on Nov. 11, the most since at least 1997 when Bloomberg began collecting the data.
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