Spanish 10-year bonds jumped, headed for the biggest weekly gain since January, as investors sought higher-yielding securities on optimism European policy makers are taking steps to stem the euro area’s debt crisis.
German 10-year bunds declined after the European Central Bank relaxed some rules on the collateral that banks can offer in exchange for its loans. German Chancellor Angela Merkel will meet her French, Italian and Spanish counterparts in Rome today. Luxembourg Prime Minister Jean-Claude Juncker said aid for Spain to help finance its banks will start from Europe’s temporary rescue facility before being transferred to the permanent fund, once it’s set up.
“This ECB action is risk positive in the sense that it is a way of easing monetary policy and it should increase risk trades,” said Luca Cazzulani, a senior fixed-income strategist at UniCredit SpA in Milan. “It should give Spanish bonds a boost in the short-term.”
Spanish 10-year yields dropped 23 basis points, or 0.23 percentage point, to 6.38 percent at 5 p.m. London time. The 5.85 percent security due January 2022 rose 1.555, or 15.55 euros per 1,000 euro ($1,255) face amount, to 96.24.
The yield on Spain’s 10-year bonds fell 49 basis points this week, the biggest drop since the five days through Jan. 27.
The Frankfurt-based central bank’s Governing Council decided two days ago to lower the minimum rating threshold for mortgage-backed securities to BBB- from A-, an ECB official, who declined to be identified because the discussions were private, said yesterday. Spanish banks have been unable to use some securities as collateral because the rating is too low, the person said.
Merkel mets today with Italian Prime Minister Mario Monti, Spanish Prime Minister Mariano Rajoy and French President Francois Hollande. The gathering preceded a euro-area leaders’ summit on June 28-29, which will decide on the setup of the Spanish rescue package.
Euro-area officials need to come up with a blueprint for a tighter fiscal and financial union at next week’s summit or there will “be progressively greater speculative attacks” on the currency bloc’s “weaker” nations, Monti told newspapers. The International Monetary Fund said nations must make a “strong commitment” to the euro to stop a plunge in investor confidence.
The German 10-year bund yield rose five basis points to 1.58 percent, after earlier sliding three basis points. Bunds underperformed most of their euro-region peers, including France, Belgium and Portugal.
Volatility on Portuguese bonds was the highest in euro-area markets today followed by Ireland, according to measures of 10-year debt, the spread between two- and 10-year securities and credit-default swaps.
Portugal’s 10-year bonds advanced for a seventh day, with the yield falling to less than 10 percent for the first time in more than a year, after Finance Minister Vitor Gaspar said the nation is “determined” to meet its budget deficit target this year. The 10-year rate declined 66 basis points to 9.49 percent, the lowest since May 23, 2011. It has fallen 1.21 percentage points since June 14.
Similar-maturity Italian debt fell, with the yield rising five basis points to 5.80 percent.
Greece’s bonds dropped for the third time in four days after IMF Managing Director Christine Lagarde said the nation’s bailout memorandum of understanding won’t be renegotiated.
The rate on the nation’s 2 percent bonds due February 2023 rose 30 basis points to 27.21 percent. The price of the securities slid to 16.385 percent of face value.
German debt returned 2.6 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish securities lost 5.1 percent, Portuguese bonds gained 27.3 percent and Italian bonds rose 8.5 percent, the indexes showed.