Spanish, Italian Bonds Rise on Debt-Buying Bets

Spanish government bonds had their biggest weekly advance in almost five months and Italian securities rose on optimism policy makers are taking steps to reduce the borrowing costs of the region’s lower-rated nations.

Spain’s 10-year yields fell from a euro-era high after French President Francois Hollande said leaders are exploring letting a euro-area rescue fund buy debt from countries that have taken fiscal-consolidation steps. Similar-maturity Portuguese rates fell below 10 percent for the first time in more than a year after Finance Minister Vitor Gaspar said the nation is “determined” to meet its deficit target. German bunds fell for a third consecutive week.

“As long as the market is starting to see progress, then it gives it a bit of confidence,” said Pablo Zaragoza, head of interest-rate strategy for Europe and the U.S. at Banco Bilbao Vizcaya Argentaria SA in Madrid. “It is seeing that policy makers might take some steps to rein in yields. That’s helped Spanish and Italian bonds this week.”

Spanish 10-year yields fell 49 basis points, or 0.49 percentage point, over the week to 6.38 percent at 5:17 p.m. in London yesterday, after reaching a euro-era high of 7.285 percent on June 18. That’s the biggest decline since the five days through Jan. 27. The 5.85 percent security due January 2022 advanced 3.32, or 33.20 euros per 1,000-euro ($1,254) face amount, to 96.24.

Portugal’s 10-year yield fell 103 basis points to 9.49 percent, while similar-maturity Italian rates declined 13 basis points to 5.80 percent.

‘Virtuous Countries’

“We’re looking at the ways and means” to use the European Stability Mechanism to bring down borrowing costs for “virtuous countries,” Hollande told reporters after a summit of Group-of-20 leaders in Los Cabos, Mexico, on June 20. The European Central Bank said yesterday it would relax some rules on the collateral that banks can offer in exchange for central bank loans.

German 10-year yields jumped 14 basis points to 1.58 percent and climbed as high as 1.64 percent on June 20, the most since May 3.

An index of executive and consumer sentiment in the 17-nation euro area fell to 89.6 in June from 90.6 a month earlier, according to the median estimate of 26 economists in a Bloomberg survey before the European Commission report due for release on June 28. That would be the lowest since October 2009. Italy plans to sell five- and 10-year bonds the same day.

German debt returned 2.6 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies as of June 21. Spanish securities lost 5.1 percent, Portuguese bonds gained 27 percent and Italian bonds rose 8.5 percent, the indexes showed.

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