German 10-year bunds declined, paring their biggest weekly advance in almost a month, after a report said euro-region policy makers will unveil a financial bailout program for Spain as early as next week.
Italian 10-year securities dropped, even as a senior government official said the nation won’t request external aid unless increased borrowing costs restrict its access to bond markets. Spanish Economy Minister Luis de Guindos is in talks with European Commission authorities to facilitate a new rescue program that will be presented on Sept. 27, the Financial Times reported, citing unidentified officials involved in the discussions.
“The news that talks between EU authorities and Spain are going on in the background has led to an improvement in risk appetite,” said Brian Barry, an analyst at Investec Bank Plc in London. “Positive newsflow from the periphery overnight has resulted in the bid for safe-haven assets tapering back.”
Germany’s 10-year yield climbed two basis points, or 0.02 percentage point, to 1.6 percent at 4:33 p.m. London time. It has dropped 11 basis points this week, the most since the five-day period ending Aug. 24. The 1.5 percent security due in September 2022 fell 0.195, or 1.95 euros per 1,000-euro ($1,303) face amount, to 99.13.
German bonds returned 2.5 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish securities added 1.4 percent, while Italy’s earned 16 percent.
The bonds of every euro-region nation tracked by the EFFAS indexes have recorded positive returns this quarter through yesterday. German bunds were the worst performers with a 0.5 percent gain, the indexes show.
European Central Bank President Mario Draghi unveiled details of the ECB’s asset-purchase plan on Sept. 6, saying activation was dependent on countries asking for help. The Federal Reserve said on Sept. 13 it would buy mortgage securities to bolster the recovery, while the Bank of Japan unexpectedly added 10 trillion yen ($128 billion) to its stimulus program on Sept. 19.
The ECB has reduced the risk “of a euro-zone breakdown and has led to a sharp tightening of peripheral bond yields,” said Elwin de Groot, a senior market economist at Rabobank Nederland in Utrecht. “We’ve also seen many global central banks increase monetary policy stimulus. These can be seen as creating a tide that lifts all boats.”
The plan for Spain will focus on structural measures long sought by the EU, not new taxes or spending cuts, though the European Commission may still request more austerity measures to meet existing budget targets, the Financial Times said.
Spanish 10-year yields were little changed at 5.77 percent. The rate climbed eight basis points yesterday as the nation sold 4.8 billion euros of debt due in 2015 and 2022.
“There won’t be any nation that voluntarily, with a preemptive move, even if rationally justified, would go to an international body and say, ‘I give up my national sovereignty,’” Gianfranco Polillo, Italy’s undersecretary of finance, said in an interview in Rome late yesterday. “I rule it out for Italy and for any other country.”
Italy’s 10-year yield added six basis points to 5.05 percent. The rate has risen three basis points this week.
Volatility on French bonds was the highest in euro-area markets today, followed by Greece, according to measures of 10-year or equivalent-maturity debt, the spread between two-year and 10-year securities and credit-default swaps.
Greek 10-year bonds advanced, pushing the yield on the securities below 20 percent for the first time since March 29.
The yield dropped 58 basis points to 19.96 percent.