Italian Bonds Rise After Zero-Coupon Sale as Greece Prepares for Debt Swap
Italy’s 10-year bonds rose for a seventh week, the longest run of gains in the euro-era, after a decision by European finance ministers to bail out Greece boosted demand for higher-yielding assets.
Spanish 10-year (GSPG10YR) securities posted their biggest weekly advance in a month after Greece was given 130 billion euros ($172 billion) of aid following talks in Brussels. German bunds gained as the European Commission said the region’s economy will shrink this year, underpinning the attraction of safer investments. The European Central Bank is next week scheduled to offers a second round of three-year loans to banks.
“Italian and Spanish bonds have extended gains this week as risk sentiment improved” following the Greek bailout, said Orlando Green, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “We’ve seen better demand for peripheral bonds since the turn of the year.”
Italy’s 10-year (GBTPGR10) yield fell nine basis points, or 0.09 percentage point, this week to 5.49 percent at 5 p.m. in London yesterday. The 5 percent bond due March 2022 rose 0.685, or 6.85 euros per 1,000-euro face amount, to 96.865. The yield has declined 165 basis points over the past seven weeks.
Spanish 10-year yields dropped 21 basis points this week to 5.05 percent, reducing the extra yield investors demand to hold the securities instead of German bunds by 17 basis points to 3.16 percentage points.
Greece Deal
Greece reached an agreement with its private creditors on Feb. 21 to secure the biggest sovereign restructuring in history. Investors agreed to forgive 53.5 percent of their principal and exchange their remaining holdings for new Greek bonds and notes from the European Financial Stability Facility.
Germany’s 10-year yield fell four basis points over the week to 1.88 percent, the biggest decline in a month.
The euro-area will shrink 0.3 percent this year, the European Commission said Feb. 23, scrapping an earlier forecast of 0.5 percent growth. The reduction was mainly based on projected contractions of 1.3 percent in Italy and 1 percent in Spain, it said.
European financial institutions may ask for 470 billion euros of loans from the ECB’s planned longer-term refinancing operation this month, compared with 489 billion euros in December, according to a Bloomberg News survey.
“The LTRO is the big event and overshadows the rest of the landscape,” said David Schnautz, a fixed-income strategist at Commerzbank AG in London. “The overall market sentiment is still positive.”
Italian bonds have advanced 9 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish bonds gained 2.1 percent and German bunds fell 0.2 percent.
Italy will sell as much as 3.75 billion euros of 10-year bonds and up to 2.5 billion euros of five-year notes on Feb. 28. Germany will sell 4 billion euros of 10-year bonds the following day. France will auction five-, seven-, 10- and 14-year bonds on March 1.
To contact the reporter on this story: Keith Jenkins in London at Kjenkins3@bloomberg.net; David Goodman in London at dgoodman28@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net.
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