Italian and Spanish bonds gained, outperforming bunds, on speculation European Union finance ministers meeting today in Brussels will make progress on measures to help resolve the region’s sovereign debt crisis.
Ten-year Italian yields dropped for a sixth day, falling to the lowest level in more than six weeks, as European stocks gained, increasing demand for higher-yielding assets. Greek 10- year bonds advanced as French Finance Minister Francois Baroin said talks between the nation and its private creditors were moving forward. German 10-year bunds fell for a third day.
A possible Greek debt deal “and the EU meetings in the evening, in combination is something that is giving some positive sentiment to the market,” said Niels From, chief analyst at Nordea Bank AB in Copenhagen. “We’ve seen bunds under significant pressure.”
The 10-year Italian yield dropped 14 basis points, or 0.14 percentage point, to 6.11 percent at 4:49 p.m. London time, the least since Dec. 8. The 5 percent bond due March 2022 advanced 0.965, or 9.65 euros per 1,000-euro ($1,304) face amount, to 92.38.
The extra yield investors demand to hold Italy’s 10-year securities instead of German bunds, the region’s benchmark securities, shrank 19 basis points to 413 basis points.
EU finance ministers are meeting to discuss new budget rules, a financial firewall to protect indebted states and the Greek debt swap, with leaders racing to put together a firm rescue response in the coming weeks. The Greek negotiations in Athens were making “tangible progress,” Baroin said at a press conference in Paris.
FT Deutschland reported that negotiators for Greece and the Institute of International Finance broadly agreed on the terms of a debt swap over the weekend. The deal on private-sector involvement, or PSI, may be concluded in the next few hours, the newspaper said.
“The market is quite binary; it has worked out that if there isn’t a deal via the PSI there will be a default, so there’s a lot of brinkmanship going on,” Steven Major, global head of fixed-income research at HSBC Holdings Plc in London, said in an interview on Bloomberg Radio. “I don’t think that you should believe too much in terms of the stories about there being a default. It’s more like a negotiating tactic on behalf of the Greek authorities.”
The Stoxx Europe 600 Index (SXXP) of shares gained 0.5 percent.
German bunds underperformed most of their euro-area peers. The extra yield investors receive for holding the 10-year securities of Portugal, Spain, Greece, Belgium, Ireland, Finland, Austria and the Netherlands instead of bunds declined.
The yield on the benchmark 10-year bund increased four basis points to 1.97 percent.
Volatility on Greek debt was the highest in euro-area markets today followed by Portugal, according to measures of 10- year bonds, two- and 10-year yield spreads and credit-default swaps. The move in the spread was 6.9 times the 90-day average.
The yield on Greece’s benchmark 5.9 percent bonds maturing in October 2022 fell 59 basis points to 33.57 percent, with the price climbing to 21.10 percent of face value. The two-year note yield dropped 1,199 basis points to 168.43 percent. It earlier surged to a record 206.86 percent.
Portuguese 10-year bonds gained for the first time in four days, with the yield dropping 40 basis points to 14.22 percent. That narrowed the yield spread over bunds by 44 basis points to 12.24 percentage points.
Vigilantes Eye Portugal
“The market wants to believe in a positive outcome” from the Greek talks, said Matteo Regesta, a senior interest-rate strategist at BNP Paribas SA in London. “Portugal is significantly tighter and that is the next market being closely watched by the bond vigilantes because of the strong fundamental problems it is currently facing.”
Greek debt returned 0.8 percent this year, while Italian bonds made 3.3 percent, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German securities lost 0.6 percent after returning 9.7 percent last year.
French bonds declined as the nation auctioned 8.2 billion euros of 91-, 168- and 350-day bills.
The 10-year yield gained six basis points to 3.14 percent, while two-year yields were little changed at 0.81 percent.
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