Italy’s Bonds Post Weekly Advance on Stimulus Bets, Sale Demand

Italy’s bonds posted a weekly gain, with 10-year yields falling to the lowest on record, as prospects of further European Central Bank stimulus fueled demand for the region’s debt securities.

Portugal’s 10-year yield dropped to the lowest in more than eight years and Ireland’s fell to an all-time low as a report showed German producer prices declined for an eighth month in March. Italy’s bonds pared their gain today as the Rome-based Treasury sold 20.6 billion euros ($28.5 billion) of six-year inflation-linked securities dubbed BTP Italia and aimed mainly at retail investors. Benchmark German bunds were little changed on the week.

ECB officials “have talked up the fact they are willing to undertake unconventional measures if their forecasts deem it necessary,” said Marc Ostwald, a fixed-income strategist at Monument Securities Ltd. in London. “We are not in the scenario as of yet where people expect a sell-off in periphery. There is reasonable underlying support.”

Italy’s 10-year yield rose two basis points, or 0.02 percentage point, to 3.12 percent at 4:28 p.m. London time after dropping to 3.068 percent, the lowest since Bloomberg started collecting the data in 1993. The 4.5 percent bond due in March 2024 fell 0.185, or 1.85 euros per 1,000-euro face amount, to 111.845. The rate dropped nine basis points this week.

Portugal’s 10-year yield fell one basis point to 3.74 percent after dropping to 3.66 percent, the least since February 2006. The rate slid 23 basis points since April 11.

Portugal Auction

The nation plans to sell as much as 750 million euros of bonds maturing in February 2024 on April 23, Lisbon-based government debt agency IGCP said on its website today. The auction will be the first since Portugal requested a European Union-led bailout in April 2011. The nation has raised 6.25 billion euros selling debt through banks this year.

Orders from small investors for the Italian index-linked sale from April 14 through yesterday totaled 10.1 billion euros while an additional 10.5 billion euros came from institutional buyers today, the Rome-based Treasury said by e-mail. All bids were satisfied, according to the statement.

Bonds from Italy to Portugal are being buoyed by speculation ECB policy makers will expand stimulus to fuel an inflation rate that’s a quarter of their 2 percent goal. Investors are also buying the bonds, which are underpinned by ECB President Mario Draghi’s 2012 pledge to safeguard the euro, as a refuge amid turmoil in Ukraine.

German factory prices fell 0.9 percent last month from a year earlier, the Federal Statistics Office in Wiesbaden said. Data yesterday showed the annual inflation rate in the euro area was 0.5 percent last month, the slowest in four years.

Irish Record

Ireland’s 10-year yield fell as much as two basis points to 2.83 percent, the lowest since Bloomberg began compiling the data in 1991.

The rate on similar-maturity Spanish bonds dropped to 3.04 percent, the least since September 2005, before rising two basis points to 3.09 percent. Germany’s 10-year bund yield increased three basis points today to 1.51 percent, compared with 1.50 percent on April 11.

The extra yield, or spread, that investors demand for holding Spanish 10-year bonds instead of benchmark German bunds shrank to 1.56 percentage points, the least since October 2010.

“We like Spain and Italy in particular,” David Tan, global head of rates at J.P. Morgan Asset Management in London, said in an interview yesterday. “No doubt spreads have compressed a good deal but there is still some way to go.”

Trading in euro-area government bonds will be closed tomorrow for Good Friday and on April 21 for Easter Monday and will reopen on April 22.

Italian bonds returned 6.5 percent this year through yesterday, according to Bloomberg World Bond Indexes. Spain’s gained 6.9 percent and Germany’s earned 3.1 percent.

To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net; Eshe Nelson in London at enelson32@bloomberg.net

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

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