Italy’s government bonds advanced for a second day as European stocks rose on optimism U.S. lawmakers will reach an agreement on raising the nation’s debt limit to avert a default.
Spanish, Greek and Portuguese bonds also climbed. Italian 10-year yields fell for a second day as the nation auctioned 6 billion euros ($8.1 billion) of securities due between 2016 and 2028. German 10-year bunds advanced after European Central Bank President Mario Draghi said yesterday a pledge to keep interest rates low explicitly allows for cuts in borrowing costs if market volatility resumes.
“Everyone is focusing on the U.S. and there is maybe some relief that is spreading to risky assets like peripheral bonds today,” said Christian Lenk, a fixed-income analyst at DZ Bank AG in Frankfurt. “All in all it’s a solid Italian auction, especially for the 15-year, which saw better demand. As we’ve seen already this week, even 30-year Spanish government bonds are finding good demand.”
The yield on Italian 10-year bonds fell six basis points, or 0.06 percentage point, to 4.28 percent at 4:25 p.m. London time. The 4.5 percent security due in March 2024 rose 0.485, or 4.85 euros per 1,000-euro face amount, to 102.175.
The rate on similar-maturity Spanish debt slid four basis points to 4.30 percent, Greek 10-year yields fell 23 basis points to 8.85 percent, while the rate on Portuguese 10-year bonds dropped 16 basis points to 6.24 percent.
The Stoxx Europe 600 Index (SPX) of shares added 0.4 percent, while the MSCI Asia Pacific Index was up 1.3 percent. The Standard & Poor’s 500 Index was little changed after surging 2.2 percent yesterday, the biggest gain since Jan. 2.
President Barack Obama and House Republican leaders were moving toward an agreement to extend the nation’s borrowing authority even as they remained at odds over terms for ending the partial government shutdown.
They met for 90 minutes at the White House yesterday after House Speaker John Boehner of Ohio said he would offer a measure to postpone a potential U.S. default to Nov. 22 from Oct. 17. The developments were the first sign that the president and House Republican leaders could resolve the fiscal impasse without negative economic consequences from a default as the halt in government operations moved into its 11th day.
The Rome-based Treasury sold 3.5 billion euros of three-year notes at an average yield of 2.25 percent, compared with a rate of 2.72 percent at a previous auction on Sept. 12. It allotted 15-year bonds at a yield of 4.59 percent, down from 4.88 percent last month.
Italy sold 5 billion euros of seven-year bonds via banks on Oct. 9, while Spain allotted 4 billion euros of a new 30-year benchmark security the same day.
Speaking at the Economic Club of New York, Draghi said that the path of policy rates also remains conditional on the outlook for inflation,
“The Governing Council has unanimously agreed to incorporate an easing bias that explicitly provides for further rate reductions, should the volatility in money market conditions return to the levels observed in early summer,” Draghi said.
Annualized consumer-price inflation in Germany, calculated using a harmonized European Union method, was 1.6 percent last month, the same as in August, the Federal Statistics Office in Wiesbaden said.
Germany’s 10-year bund yield dropped two basis points to 1.85 percent after climbing to 1.88 percent, the highest since Sept. 24.
Volatility on Portuguese bonds was the highest in euro-area markets today, followed by those of Greece and Spain, according to measures of 10-year debt, the yield spread between two- and 10-year securities, and credit-default swaps.
Italian bonds gained 5.1 percent this year through yesterday, according to Bloomberg World Bond Indexes. Spain’s returned 9.1 percent and Germany’s lost 2 percent.