Spain’s government bonds rose for a second day as European Central Bank President Mario Draghi’s commitment to maintain stimulus boosted demand for higher-yielding assets.
Ireland’s five-year yields dropped to the lowest since 2005 as the nation reached an accord with the ECB to ease its funding needs over the next decade. Euro-area monetary policy may “remain accommodative,” Draghi said after the central bank’s monthly meeting yesterday. Italy’s bonds posted a second weekly decline as former Premier Silvio Berlusconi, who opposes the current government’s reforms, narrowed the lead of front-runner Pier Luigi Bersani before elections this month.
“Everything is supported by the reassurance that Draghi gave the market that liquidity isn’t going to suddenly drain out,” said Peter Chatwell, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “The extra bonus for the periphery is the Irish deal. It shows that the ECB is still very supportive of peripheral countries and is looking to help those that are doing the right thing.”
Spain’s 10-year yield fell five basis points, or 0.05 percentage point, to 5.36 percent at 4:36 p.m. London time after declining three basis points yesterday. The 5.4 percent bond due January 2023 rose 0.41, or 4.10 euros per 1,000-euro ($1,337) face amount, to 100.27. The two-year yield dropped eight basis points to 2.73 percent.
Pacific Investment Management Co. plans to hold on to shorter-maturity Spanish notes and take advantage of higher yields on the securities relative to some euro-area peers.
“Just compare the yield curves of Spain to Ireland,” Pimco’s Munich-based Managing Director Andrew Bosomworth said on Bloomberg Television’s “The Pulse” in an interview with Francine Lacqua and Guy Johnson. “Spain is about 120 basis points above comparable Irish government bonds. I still think there’s better value in Spain. To sit on the carry and roll down the curve, I think that’s the strategy.”
Inflation risks in the euro region are contained, Draghi said yesterday after ECB policy makers kept the central bank’s main refinancing rate at a record-low 0.75 percent.
Spanish bonds returned 0.9 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Italian securities gained 0.4 percent, while their German counterparts lost 1.3 percent.
Ireland’s five-year notes gained for a fourth day after the agreement on restructuring the costs of rescuing the former Anglo Irish Bank Corp.
Under the plan, dubbed ‘Project Red,’ Ireland will swap so-called promissory notes used to rescue the failed lender with long-term bonds with maturities of up to 40 years. The accord will ease the nation’s borrowing needs over the next decade by 20 billion euros.
The nation’s five-year yield declined 10 basis points to 2.81 percent after dropping to 2.79 percent, the lowest level since October 2005.
Italy’s bonds fell for a second week after a member of Bersani’s campaign said the election in three weeks may result in a hung parliament, requiring a follow-up vote to establish a governing majority.
“Returning to polls is the answer in a situation of ungovernability,” Stefano Fassina, Bersani’s head of economic policy, wrote on Twitter yesterday.
Italian 10-year yields climbed 23 basis points this week to 4.56 percent. They dropped three basis points today.
German government bonds, perceived to be among Europe’s safest debt securities, were little changed as European Union President Herman Van Rompuy said leaders agreed to a seven-year budget that cuts spending for the first time.
The deal on the EU budget was struck after 25 1/2 hours of talks in Brussels, according to a post on Twitter by Van Rompuy today. While he didn’t disclose a figure, the final draft blueprint for 2014-2020 included a spending ceiling of 960 billion euros, down from an original proposal of 1.047 trillion euros and less than the 994 billion euros spent in the current budget cycle.
German 10-year bunds yielded 1.61 percent, poised for seven basis-point decline this week.