Italy Leads Euro-Area Bonds Higher on Greek Reform-Vote Optimism

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Italian and Spanish government bonds rose for a second day, leading gains in euro-area securities, as Greece approved another round of legislation to unlock more aid.

Yields fell after Prime Minister Alexis Tsipras helped convince lawmakers in Greece to pass additional measures to satisfy creditors to secure a third bailout. The parliamentary moves have helped Italy’s 10-year securities climb every day except one since July 6. Spanish and French bonds of a similar maturity also advanced as the Thursday vote in Athens helped ease investor concerns that Europe’s most-indebted nation might become the first to exit the currency bloc.

“We’re seeing a moderate relief rally coming through in European bonds,” said Orlando Green, a fixed-income analyst at Credit Agricole SA’s corporate and investment-banking unit in London. The vote on the second batch of reforms “removes another potential source of event risk.”

Italy’s 10-year yield fell four basis points, or 0.04 percentage point, to 1.9 percent as of 5:30 p.m. London time. The 1.5 percent bond due in June 2025 rose 0.35, or 3.50 euros per 1,000-euro ($1,094) face amount, to 96.515. Similar-maturity Spanish bond yields dropped four basis points to 1.95 percent, while those on French debt fell two basis points to 1.03 percent.

“Euro zone bonds are in demand today,” said Ipek Ozkardeskaya, an analyst at London Capital Group in London. “We see the appetite for peripheral bonds increasing across the entire curve and the inflows should continue feeding the euro-zone periphery.”

Narrowing Spreads

Bonds of nations on the periphery of core countries like Germany are stabilizing after the turmoil in Greece pushed yields higher and widened spreads to 2015 highs. The Italian 10-year yield jumped as high as 2.72 percent on June 29, after Greece said it would hold a referendum on the austerity measures required for further aid.

On the same day the spread, or the additional yield demanded by investors to hold 10-year Italian bonds over equivalent-maturity bunds, rose to 199 basis points, which was its widest since October 2014.

Since then, progress in negotiations and Greece repaying the European Central Bank and the International Monetary Fund have led those spreads to narrow to the current level of about 115 basis points.

Credit Agricole’s Green said markets would probably be “choppy” due to low liquidity but “there is enough to push the periphery tighter toward the core,” squeezing spreads to around the 100 basis points in coming months.

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