Portugal’s Bonds Rise as Borrowing Costs Fall; German Bunds Drop

Portugal’s government bonds advanced for a fourth day as borrowing costs at a sale of 12-month bills dropped to the lowest since at least 2005, adding to evidence the region’s debt crisis is behind it.

The country’s 10-year yields dropped toward the lowest level in four years as it seeks to regain full access to debt markets with the end of its 78 billion-euro ($108 billion) rescue program approaching in May. Italian 10-year yields fell to the lowest since September 2005 and those on their Spanish equivalents dropped to the least since 2006. German bunds slid with Treasuries as demand for safer assets waned and investors weighed prospects for a Federal Reserve rate-guidance overhaul.

“As long as the European Central Bank maintains an easing bias and the euro-zone economy continues to recover, particularly the peripherals, then investors will continue to seek yield pickup,” said Nick Stamenkovic, a fixed-income strategist at broker RIA Capital Markets Ltd. in Edinburgh. There is scope for spreads between higher-yielding bonds and core markets to keep narrowing, he said.

Portugal’s 10-year yield fell five basis points, or 0.05 percentage point, to 4.38 percent at 4:17 p.m. London time after dropping to 4.31 percent on March 11, the lowest since April 2010. The 5.65 percent bond due in February 2024 rose 0.405, or 4.05 euros per 1,000-euro face amount, to 110.035.

The government sold 930 million euros of bills maturing in March 2015 at an average yield of 0.602 percent, the lowest since Bloomberg began compiling the data in March 2005.

Portuguese Funding

Portugal plans gross bond issuance of between 11 billion euros and 13 billion euros this year, and the debt agency said in January it expects to reintroduce bond auctions in the first half of this year. The country has already started to obtain funding for 2015, the debt agency said on Feb. 11 after selling 3 billion euros of 10-year bonds through banks.

Investors are returning to the markets they shunned during the debt crisis, helping push the average yield to maturity on bonds from Greece, Ireland, Italy, Portugal and Spain to the lowest in the euro era yesterday, according to Bank of America Merrill Lynch indexes. Ireland, which exited its bailout program in December, raised 1 billion euros last week in its first bond auction since September 2010. Greece hopes to return to bond markets for the first time in four years before May.

Draghi Pledge

The rally started in July 2012 when ECB President Mario Draghi said the central bank was “ready to do whatever it takes” to preserve the euro as the crisis threatened to splinter the region’s monetary union. Italian 10-year yields have dropped about 3 percentage points since then.

Italy’s 10-year yield rose two basis points to 3.38 percent today after falling to 3.35 percent, the least since October 2005. Yields on similar-maturity Spanish debt were three basis points higher at 3.34 percent, after declining to 3.29 percent, the lowest level since January 2006.

Greece’s bonds maturing February 2024 rose for a third day, with the yield dropping six basis points to 6.77 percent.

“The market seems to be trying to trade toward risk on,” said Marius Daheim, a senior fixed-income strategist at Bayerische Landesbank in Munich. Investors “are starting to shift their focus toward sub-investment grade such as Portugal and Greece now,” he said.

Germany’s 10-year yield climbed three basis points to 1.60 percent after declining to 1.50 percent on March 14, the lowest since July 19. Treasury 10-year yields rose two basis points to 2.70 percent before the Federal Open Market Committee ends its two-day policy meeting.

German Auction

Germany sold 3.26 billion euros of bunds maturing in February 2024 at an average yield of 1.58 percent, compared with 1.64 percent at a previous sale on Feb. 19. Investors bid for 1.59 times the amount of securities allotted, up from 1.1 times in February.

Volatility on Finnish bonds was the highest in euro-area markets today, followed by those of France and Austria, according to measures of 10-year debt, the yield spread between two- and 10-year securities and credit-default swaps.

Portugal’s bonds returned 11 percent this year through yesterday, according to Bloomberg World Bond Indexes. Spain’s gained 5.4 percent, Italy’s 4.7 percent and German securities earned 2.5 percent.

To contact the reporters on this story: Neal Armstrong in London at narmstrong8@bloomberg.net; Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net

To contact the editors responsible for this story: Paul Dobson at pdobson2@bloomberg.net Keith Jenkins, Nicholas Reynolds

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