Spanish, Italian Bonds Advance as Greek Government Named

Spanish and Italian bonds rose, leading gains among government debt issued by Europe’s high-deficit nations, as Greece named an interim government to prepare for elections aimed at ending a political impasse.

German bund yields climbed from within one basis point of a record low as signs of progress in Greece damped demand for the region’s safest securities. Greek bonds gained. The extra yield investors demand to hold Spanish 10-year bonds instead of bunds earlier widened to a euro-era record after Prime Minister Mariano Rajoy said the country risked being shut out of financial markets.

“There’s been some short-covering in Spain and Italy,” said Huw Worthington, a fixed-income strategist at Barclays Capital in London. “There’s been no change in fundamentals. Greece needs to have a government. There are still concerns that they may leave the euro zone.” Short covering refers to investors ending bets a security will decline.

The Spanish 10-year yield fell five basis points, or 0.05 percentage point, to 6.30 percent at 4:21 p.m. London time after climbing to 6.51 percent, the highest level since Nov. 29. The 5.85 percent security due January 2022 rose 0.355, or 3.55 euros per 1,000-euro ($1,272) face amount, to 96.80.

Italy’s 10-year bond yield dropped four basis points to 5.83 percent. It earlier climbed to 6.01 percent, a level last seen on Jan. 31.

Caretaker Government

The Greek caretaker government that was agreed on today in Athens will prepare new elections probably on June 17, Democratic Left leader Fotis Kouvelis said. The administration will be led by Panagiotis Pikrammenos, head of the Council of State, the highest administrative court, Independent Greeks leader Panos Kammenos said after talks with other party leaders in Athens.

The new ballot will follow inconclusive May 6 elections. Opinion polls say the Syriza party, which is opposed to Greece’s international bailout, may get the greatest number of votes, complicating Greece’s efforts to avoid running out of cash by early July.

The German 10-year bund yield was unchanged at 1.47 percent after falling to 1.44 percent, within one basis point of a record low 1.434 percent reached on May 14.

Greece’s 2 percent bond due in February 2023 rose for the first time in 12 days. The yield dropped 55 basis points to 28.86 percent after rising above 30 percent today for the first time since the nation’s debt restructuring in March. The price gained 0.455 to 14.725 percent of value.

‘Astronomical Prices’

Spanish bonds fell earlier after Prime Minister Rajoy called on the European Union to take measures to support public debt sustainability.

He told reporters there was a risk investors will stop lending to Spain or charge “astronomical prices” after the extra yield investors demand to hold Spanish debt instead of German bonds widened to a euro-era record of 5.07 percentage points.

Irish notes fell for a ninth day amid speculation voters will reject a referendum this month that would enshrine planned European fiscal rules in national law.

“We’ve seen selling across the curve in Ireland,” said Peter Chatwell, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “There are two aspects to the selling, the first simply being the contagion effect of possible Greek exit from the euro, the second being Ireland’s own referendum risk, due on May 31.”

The Irish two-year yield climbed 43 basis points to 6.72 percent after reaching 7.15 percent, rising above 7 percent for the first time since Jan. 12.

Volatility in Irish securities was the highest in the euro area, followed by Portugal, according to measures of 10-year bonds, two- and 10-year yield spreads and credit-default swaps compiled by Bloomberg.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE