Italian government bonds advanced, pushing 10-year yields to a seven-week low, as Greece gave the order to repay creditors after last week’s tentative bailout deal.
Euro-area peripheral bonds were among the biggest gainers in the region as investors sought higher-yielding assets. Portuguese 10-year debt climbed for a 10th straight day, with the yield premium over equivalent-maturity benchmark German bunds tumbling to a three-week low, based on closing prices.
“The relief on Greece could only be positive for the peripheral markets,” said Ipek Ozkardeskaya, an analyst at London Capital Group in London. “There is room for further narrowing in core-periphery yields on relief.”
Italy’s 10-year bond yield fell one basis point, or 0.01 percentage point, to 1.91 percent at 4:23 p.m. London time. The 1.5 percent bond due June 2025 rose 0.09, or 90 euro cents per 1,000-euro ($1,086) face amount, to 96.405.
Euro-area bonds have climbed in the week since Greece reached an agreement with its creditors over the austerity measures needed to access its third bailout in five years. The average yield on euro-area sovereign securities declined to 0.88 percent on Friday, the lowest since June 2 and down from a high for this year of 1.08 percent on June 15.
Negotiations were fraught before the deal, with European Commission President Jean-Claude Juncker speaking openly about the possibility of Greece leaving the euro.
“A lot of people had been cautious about buying peripheral debt while there was a risk of a Grexit,” Alix Stewart, a money manager at Schroder Investment Management, said in an interview on Bloomberg Television’s “The Pulse” with Manus Cranny. “It was put on the table as part of the negotiating tactics,” and now, “clearly the worst-case scenario has been averted.”
The additional yield investors demand to hold 10-year Portuguese bonds over equivalent-maturity bunds slipped to 182 basis points, the lowest since the close on June 26. German debt yields dropped two basis points to 0.77 percent.
Peripheral government debt has outperformed the rest of the euro region over the past month, according to Bloomberg World Bond Indexes. Italy’s bonds returned 2.8 percent and Portugal’s 3.1 percent, compared with a 1.6 percent average across the currency union.