Italian Bonds Advance With Spain’s as Reports Signal Recovery
Italian and Spanish government bonds rose for a fourth week, the longest streak since May, after an improvement in euro-area services output and German factory orders spurred demand for the region’s higher-yielding assets.
Italy’s 10-year yield dropped to the lowest in eight weeks, narrowing the spread versus German securities, as separate data showed the nation’s recession eased in the second quarter. Greek bonds advanced for a fifth week. German bunds declined as signs the euro area is recovering from a record-long recession damped demand for the region’s safest assets. Trading volumes declined as investors awaited the next Federal Reserve policy meeting and Germany’s federal election.
“There has been some improvement in data and the tone in peripherals has been fairly constructive,” said Peter Goves, a fixed-income strategist at Citigroup Inc. in London. “Spreads have tightened to Germany. In the absence of negative catalysts, this will probably continue in the near-term. That said, the euro-area economy is far from pre-crisis levels.”
Italy’s 10-year yield fell seven basis points, or 0.07 percentage point, this week to 4.19 percent at 5 p.m. in London yesterday, after reaching 4.17 percent, the lowest since June 10. The 4.5 percent bond maturing in May 2023 rose 0.505, or 5.05 euros per 1,000-euro ($1,334) face amount, to 102.795.
Similar-maturity Spanish yields dropped seven basis points to 4.50 percent after reaching 4.48 percent yesterday, the lowest since June 6.
An index of activity in the euro-area services industry based on a survey of purchasing managers rose to 49.8 in July from 48.3 a month earlier, Markit Economics said on Aug. 5. German factory orders increased 3.8 percent in June, a government report showed on Aug. 6.
The volume of benchmark bund futures traded declined to an average 460,900 contracts over the past five days, from 726,000 during the 12 months through last week.
“The bonds are on autopilot through the summer lull and bund volumes are extremely low,” said Marius Daheim, a senior fixed-income strategist at Bayerische Landesbank in Munich. “A lot of people have decided that they want to be neutral at current levels, until they see the outcome of the German elections and what the Fed will do. As long as these things are looming, people will just stay on the sidelines.”
Germany’s election will be held on Sept. 22, while the Fed’s Open Market Committee meets on Sept. 17-18.
Analysts said a report next week will show the euro-region economy pulled out of recession in the second quarter. Gross domestic product increased 0.2 percent in the three months ended June, snapping six quarters of contraction, according to a Bloomberg survey before the data is released on Aug. 14.
Italian bonds returned 4.2 percent this year through Aug. 8, according to Bloomberg World Bond Indexes. Spanish securities gained 7.1 percent, while German bonds lost 1.4 percent.
To contact the reporter on this story: Anchalee Worrachate in London at email@example.com