Spanish government bonds rose, with 10-year securities halting a two-day decline, as investors weighed the outlook for additional central-bank stimulus.
Portuguese and Irish bonds also rallied amid speculation judges in Germany’s highest court will rule in favor of the European Central Bank’s bond-buying program known as Outright Monetary Transactions. Germany’s two-year notes gained for the first time in five day as the nation sold 4 billion euros ($5.33 billion) of the securities. Greek bonds tumbled for a sixth day. on concern Prime Minister Antonis Samaras faces a rebellion after shutting the nation’s public broadcaster overnight.
“There’s a bit of improvement in risk appetite,” said Peter Chatwell, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “Spanish bonds are outperforming because Italy is weighed on by tomorrow’s supply. It will be profit taking, rather than being driven on fundamentals. The news we need is about central bank policy.”
Spain’s 10-year yield dropped four basis points, or 0.04 percentage point, to 4.62 percent at 4:24 p.m. London time after climbing to 4.76 percent yesterday, the highest level since April 9. The 5.4 percent bond due in January 2023 rose 0.34, or 3.40 euros per 1,000-euro face amount, to 105.95.
Spanish securities also advanced as a report showed euro-area industrial output unexpectedly increased in April. Factory production rose 0.4 percent from March, when it climbed a revised 0.9 percent, the European Union’s statistics office said. The median forecast in a Bloomberg News survey of economists was for no change.
The bonds of the euro-area’s high debt and deficit nations were also supported as Dow Jones reported that Andreas Vosskuhle, chief justice of Germany’s Federal Constitutional Court, said conditions on the ECB’s pledge may ensure the central bank doesn’t overstep its powers.
“This should be good for expectations of a favorable ruling on OMTs and therefore supportive for the periphery,” said Gianluca Ziglio, executive director of fixed-income research at Sunrise Brokers LLP in London.
Portuguese 10-year yields declined four basis points to 6.42 percent, and similar-maturity Irish yields dropped nine basis points to 4.13 percent.
Portugal’s President Anibal Cavaco Silva urged the ECB to help the nation emerge from recession by buying the country’s debt on the secondary market.
“Portugal qualifies for secondary-market intervention for public debt, which the European Central Bank at one point said they would be able to carry out,” Cavaco Silva told reporters at the European Parliament in Strasbourg, France.
German two-year yields fell two basis points to 0.18 percent after rising to 0.24 percent yesterday, the highest level since Feb. 13. The 10-year yield was little changed at 1.60 percent.
Germany allotted the two-year notes at an average yield of 0.18 percent, the highest level since a sale on Feb. 13, and up from 0.02 percent on May 15.
Volatility on German bonds was the highest in euro-area markets today followed by those of Belgium and Finland, according to measures of 10-year debt, the yield spread between two- and 10-year securities, and credit-default swaps.
Greek bonds extended this month’s decline after the nation’s Pasok and Democratic Left parties, which make up the coalition with Samaras’s New Democracy party, criticized the decision to close the nation’s public broadcaster ERT and create a new, smaller company.
The 10-year yield jumped 39 basis points to 10.41 percent after increasing 46 basis points yesterday.
Italian bonds were little changed before the government sells as much as 5 billion euros of debt maturing in 2016 and 2028 tomorrow. The 10-year yield declined one basis point to 4.36 percent.
Spanish securities returned 5.4 percent this year through yesterday, according to the Bloomberg Spain Sovereign Bond Index. German bonds fell 1.2 percent, while Greek securities gained 28 percent, separate indexes show.