Spanish and Italian bonds gained this week amid bets that redemptions of about 52 billion euros ($70 billion) will bolster demand for securities that have been supported by prospects of monetary easing.
Spain’s 10-year yield dropped to a record yesterday as concern that turmoil in Portugal’s banking industry will infect the euro area eased. Spain has 16.4 billion euros of bonds maturing on July 30, while Italy is due to repay a total of 36 billion euros of debt next week, including a 27 billion-euro redemption on Aug. 1 that’s the biggest this year. German bunds were little changed as 10-year yields approached a record low.
“Substantial cash flows that we will be getting from Spain and Italy over the next week are supporting the market,” said Norbert Aul, a rates strategist at Nomura International Plc in London. “This, combined with the fact that uncertainty about the Portuguese banking sector has been scaled back to some extent, has been supporting the peripheral spread compression.”
Spain’s 10-year yield fell six basis points, or 0.06 percentage point, this week to 2.54 percent at 5 p.m. London time yesterday, when the rate touched 2.524 percent, the least since Bloomberg started collecting the data in 1993. The 3.8 percent bond due in April 2024 climbed 0.49, or 4.90 euros per 1,000-euro face amount, to 110.745.
The rate on similar-maturity Italian debt slid seven basis points to 2.71 percent, after reaching a euro-era record 2.694 percent on June 9. The yield on equivalent Portuguese bonds declined three basis points to 3.64 percent. The rate has dropped from 4.02 percent on July 10, the highest since May.
Portugal’s bonds gained for a second week even as Espirito Santo Financial Group SA, which has a 20 percent stake in Banco Espirito Santo SA, sought protection from creditors because it was unable to pay all its debts. The July 24 request was the third in a week from companies linked to the Espirito Santo family. Banco Espirito Santo, Portugal’s second-biggest bank by market value, will probably raise private funds to boost capital, central bank Governor Carlos Costa said July 18.
The flare-up in Portugal had revived memories of its role in the euro-area crisis, which pushed yields across the region’s high debt and deficit nations to euro-era records. That prompted European Central Bank President Mario Draghi’s 2012 pledge to safeguard the currency bloc with backstops which helped stanch the selloff.
Turmoil in bond markets was contained by stimulus measures announced by the ECB last month, which included charging lenders to park cash with it overnight and targeted cheap loans.
German 10-year yields were at 1.15 percent yesterday, down less than one basis point since July 18 and within three basis points of the record 1.127 percent set in 2012.
Spanish securities returned 10 percent this year through July 24, Bloomberg World Bond Indexes show. Italy’s gained 9.7 percent and Germany’s earned 5.3 percent.