Spanish and Italian government bonds are showing that there are limits to the risk of contagion as Greece’s acrimonious negotiations with its creditors threaten to push the nation closer to a default.
Spain’s 10-year bonds rose for a second day relative to Germany’s, which are perceived to be the safest in the euro region. Spanish securities advanced on Tuesday even as Greek Prime Minister Alexis Tsipras hurled insults at creditors and accused the European Central Bank of deliberately strangling the Greek economy.
Spanish yields fell from a 10-month high reached on Tuesday, demonstrating the impact of the ECB’s bond-buying program and other measures aimed at insulating the region. Pacific Investment Management Co. said it saw opportunities in Italy and Spain after the spreads widened, making the debt “attractive.”
“We should expect a lot more volatility, we should expect a lot more wider swings both in the equity and the fixed-income area,” Ashok Shah, investment director at London & Capital Group Ltd., said in an interview on Bloomberg Television’s “On the Move” with Jonathan Ferro. The ECB’s quantitative easing “is a very good stabilizing force,” he said.
Spain’s 10-year bond yield declined three basis points, or 0.03 percentage point, to 2.33 percent as of 4:27 p.m. London time. The 1.6 percent security due April 2025 rose 0.245, or 2.45 euros per 1,000-euro ($1,125) face amount, to 93.67. The yield climbed to 2.54 percent on Tuesday, the highest level since Aug. 14.
While the 10-year yield has jumped more than 1 percentage point since reaching a record-low 1.048 percent on March 12, it’s still more than 5 percentage points below levels reached in July 2012.
The extra yield, or spread, that investors get for holding Spanish 10-year bonds instead of benchmark German debt narrowed four basis points to 152 basis points. That’s down from as much as 176 basis points on Tuesday, which was the widest since May 2014. The spread reached 650 basis points in July 2012.
“There’s clearly an opportunity,” Mark Kiesel, chief investment officer for global credit at Pimco, said in a Bloomberg Television interview without commenting on specific transactions of the U.S. investment company.“The spread between Italy and Spain versus bunds right now is pretty attractive.”
Italy’s 10-year bond yield fell two basis points to 2.31 percent after climbing to 2.46 percent on Tuesday, the highest since Oct. 30.
The contagion risk posed to the euro area’s peripheral debt markets from a possible Greek default should be manageable, according to Moritz Kraemer, managing director of sovereign ratings at Standard & Poor’s.
“If you really look at the contagion risks through the direct links through common creditors, it’s not really that important any more,” Kraemer said in an interview with Anna Edwards on Bloomberg’s “Countdown” program. “There’s really a much bigger, much more powerful toolbox.”
Portugal, one of the nations to receive a bailout during the region’s sovereign-debt crisis, has cash reserves to weather developments that might come from Greece’s standoff with creditors, Prime Minister Pedro Passos Coelho said.
“If anything happens we have reserves to face any more serious financing restriction that might occur in international markets,” Coelho said Tuesday night in Oporto, northern Portugal. The nation’s 10-year bond yield dropped five basis points to 3.16 percent.
Germany’s bonds were little changed after the nation’s finance agency allotted 2.49 billion euros of 10-year securities at an average yield of 0.81 percent, the highest since October.
The yield on German 10-year bunds increased one basis point to 0.81 percent.