Portuguese and Irish government bonds surged the most since May amid speculation the European Central Bank bought the assets to cool the region’s debt crisis.
The weekly advance reduced the additional yield investors demand to hold the securities instead of benchmark German bonds. Spanish and Italian bonds also appreciated relative to bunds after the yield spreads on the securities reached euro-era records. ECB policy makers extended extraordinary stimulus measures to stem the fallout from the debt crisis following Ireland’s Nov. 28 bailout agreement.
“The ECB provided a bit of a fillip for peripherals,” said Nick Stamenkovic, a fixed-income strategist in Edinburgh at RIA Capital Markets Ltd., a broker for money managers. “It delayed its exit strategy, which has provided some relief. It has clearly also been active in the markets and spreads have been narrowing against bunds as a result.”
The yield on the 10-year Irish bond fell to 8.37 percent as of 4:13 p.m. in London yesterday, from 9.35 percent a week ago. That’s the biggest weekly drop since May 14, when the European Union and International Monetary Fund announced a backstop for ailing nations. The 5 percent security maturing in October 2020 gained 5.21, or 52.10 euros per 1,000 ($1,339) face amount, to 77.93. The bund yield rose to 2.86 percent, from 2.74 percent on Nov. 26.
Bonds from so-called peripheral nations rallied as traders said that the ECB increased purchases of government bonds. ECB President Jean-Claude Trichet said two days ago that policy makers would offer banks unlimited loans through the first quarter to stem Europe’s “acute” market tensions. The central bank will maintain its bond-buying program and continue to sterilize asset purchases, he said.
Report on Exports
Bunds may rise on Dec. 8 before a report forecast to show exports from Germany, Europe’s largest economy, stagnated in October. Sales abroad were unchanged from the previous month, according to the median estimate of 14 economists in a Bloomberg News survey.
After bond sales by Italy, Belgium, France, Germany and Spain last week, Slovakia is due to sell floating-rate notes due in 2013 on Dec. 6 and Germany plans to sell 5 billion euros of two-year notes on Dec. 8.
German bonds have handed investors a 6.8 percent profit this year, compared with a loss of 19 percent on Greek debt, 13 percent for Irish bonds and 6.4 percent on Portuguese securities, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies.