Italian Bonds Bounce Back as Investors Look to ECB Stimulus

  • Spain's yield spread versus Germany narrows most in two weeks
  • ECB policy makers will review QE program at March meeting

Italy’s 10-year government bonds rose for the first time in five days, halting a slide that sent yields to a three-month high, as concern over bank instability that sparked the selloff abated.

Spain’s 10-year securities also climbed, reducing the additional yield investors demand to hold the nation’s debt over benchmark German bunds by the most in two weeks. Portuguese 10-year bonds dropped for a fifth day, sending yields toward the highest since October 2014. European Central Bank policy makers including Benoit Coeure have reiterated in recent days that officials will review the ECB’s stimulus program at their March meeting as they attempt to bolster growth.

“It seems clear that in March they will have to decide something, not only a rate cut but also maybe something on the asset purchases, so there is some support especially for peripheral debt,” said Patrick Jacq, a senior fixed-income strategist at BNP Paribas SA in Paris. “There are signs of stabilization but these remain quite fragile.”

Italy’s 10-year bond yield fell four basis points, or 0.04 percentage point, to 1.64 percent at 4:09 p.m. London time. The 2 percent security due in December 2025 rose 0.39, or 3.90 euros per 1,000-euro ($1,122) face amount, to 103.30. The yield climbed to 1.77 percent Tuesday, the highest level since Nov. 9.

Spain’s 10-year bond yield declined three basis points to 1.72 percent, narrowing its spread over similar-maturity bunds to 148 basis points. Portugal’s 10-year bond yield increased four basis points to 3.71 percent after reaching 3.73 percent on Tuesday, the highest since October 2014. Benchmark German 10-year bund yields rose one basis point to 0.25 percent.

The bonds of Europe’s so-called peripheral nations slid at the start of the week as a rout in bank stocks reawakened the specter of contagion from the financial sector that helped send yields surging at the height of the financial crisis. Investors shunned Portugal, Italy and Spain in favor of the safest fixed-income securities, sending Germany’s two-year note yield to a record-low minus 0.525 percent on Tuesday.

Italian and Portuguese securities are among only four sovereign-debt markets tracked by Bloomberg World Bond Indexes to hand investors a loss this year through Tuesday. Spanish bonds returned 0.2 percent and Germany’s 3.3 percent in the same period.

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