July 15 (Bloomberg) -- Portuguese 10-year government bonds rose for the first time in four days amid signs that investors are willing to tolerate political unrest in Europe’s most-indebted nations.
Spanish securities rose for a second day, while Italian bonds snapped a four-day decline. France’s bonds fell as Fitch Ratings cut the country’s top credit rating last week, citing a lack of growth. German 10-year bund yields were about three basis points from the lowest in almost a month as the Netherlands and France auctioned treasury bills.
“There’s some stabilization,” said Owen Callan, an analyst at Danske Bank A/S in Dublin. “After a good bit of weakness in Spain, Italy and Portugal last week we’re seeing a bit of a recovery. People are taking a more measured approach to how they trade them this week.”
The Portuguese 10-year yield dropped 21 basis points, or 0.21 percentage point, to 7.30 percent at 4:18 p.m. London time, after jumping by 78 basis points in the three days through July 12. The 4.95 percent security due in October 2023 gained 1.32 or 13.20 euros per 1,000-euro ($1,305) face amount, to 83.41.
Portugal’s President Anibal Cavaco Silva said last week that early elections would be undesirable and urged the ruling coalition parties and the main opposition to reach a “national salvation” pact allowing the country to complete its international aid program.
Portugal requested a 78 billion-euro bailout from the European Union and International Monetary Fund in April 2011 following a surge in debt levels and borrowing costs.
Spain’s Budget Minister Cristobal Montoro last week defended Mariano Rajoy as a wave of allegations about the prime minister’s finances fueled concerns about corruption in Spain.
El Mundo newspaper reignited the debate over payments to officials from Rajoy’s People’s Party when it published photographs of a handwritten ledger which it said showed illegal payments to Rajoy between 1997 and 1999.
Rajoy “is a very honorable politician, honest and committed to the general interest of Spain,” Montoro said July 10 in televised remarks to reporters. “That’s what matters.”
Spanish 10-year yields were five basis points lower at 4.73 percent while rates on similar-maturity Italian bonds dropped two basis points to 4.47 percent.
France was cut by one step to AA+ from AAA, Fitch said on July 12, joining Moody’s Investors Service and Standard & Poor’s in removing the country from the shrinking club of top-rated governments. The outlook is stable.
French 10-year yields rose two basis points to 2.21 percent, leaving the extra yield, or spread, that investors get for holding the securities instead of German bunds at 63 basis points after reaching 65.6 basis points, the most since July 4.
Investors often disregard changes in ratings. Yields on sovereign securities moved in the opposite direction from what ratings suggested in 53 percent of 32 upgrades, downgrades and changes in credit outlook last year, according to data compiled by Bloomberg published in December.
Italy had its long-term credit rating lowered to BBB, two levels above junk, from BBB+ by Standard & Poor’s on July 9, which cited weakening of economic prospects and an impaired financial system. Italy’s 10-year yield rose six basis points last week, the first increase since the period ended June 21.
Gains by the bonds of Europe’s most indebted countries may be limited amid the region’s recession and as the European Central Bank struggles to boost lending, according to Alessandro Giansanti, a rate strategist at ING Groep NV in Amsterdam.
“The ECB has failed so far to revitalize the credit lending in peripheral countries and the negative consequences on their economies are becoming clear,” Giansanti said. “Investors which have benefited from the rally in spreads are keen to take profits on their positions.”
Portuguese securities handed investors a loss of 3 percent this year through July 12, according to Bloomberg World Bond Indexes. Spanish bonds earned 5.3 percent and Italy’s returned 2.2 percent, while German securities dropped 0.8 percent, the indexes show.
Germany’s 10-year bund yield was at 1.57 percent after dropping to 1.54 percent on July 12, the lowest since June 19.
The Netherlands sold 2.04 billion euros of 106-day bills at an average yield of minus 0.01 percent. A negative yield means investors who hold the security until it matures will receive less than they paid to buy it. The Dutch State Treasury Agency also allotted 198-day bills at 0.01 percent.
France auctioned 7.8 billion euros of bills maturing between 84 days and 343 days.
Volatility on Portuguese bonds was the highest in euro-area markets today followed by those of Greece and Finland, according to measures of 10-year debt, the yield spread between two- and 10-year securities, and credit-default swaps.
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