Italy Bond Spread Shrinks Most Since July as ECB Set to Boost QE

  • Euro-zone debt heads for best quarter since start of 2015
  • German bunds are hurt on the day by pick-up in inflation

The yield spread between Italian and German 10-year bonds is on course to shrink this month by the most since July, showing how an imminent boost to the European Central Bank’s debt-purchase plan is benefiting higher-risk securities.

Italy’s bonds were resilient on Wednesday as faster inflation in Germany and gains in global stocks weighed on that nation’s securities, pushing benchmark 10-year bund yields up for the first time in more than a week. Across the euro zone, government debt earned 3.4 percent this quarter, the most since this time last year, when the ECB was just starting quantitative easing. The central bank will increase bond purchases by 20 billion euros a month starting April.

“The overall environment is pretty supportive at this juncture, with investors looking for yield pick-up in a very low interest-rate environment,” said Nick Stamenkovic, a fixed-income strategist at Edinburgh-based broker RIA Capital Markets Ltd., adding that he prefers Italy’s bonds to Spain’s because of the nation’s relative political stability. “We could see scope for further narrowing of spreads” compared with German debt, he said.

Italy’s 10-year bond yield fell two basis points, or 0.02 percentage point, to 1.22 percent as of 4:40 p.m. London time, after falling to the lowest since March 20, 2015. The 2 percent security due in December 2025 rose 0.21, or 2.10 euros per 1,000-euro ($1,133) face amount, to 107.175.

Germany’s 10-year bund yield climbed two basis points to 0.16 percent.

That pushed the extra yield, or spread, that investors get for holding Italian debt instead of benchmark bunds to 1.06 percentage points, a 26 basis-point decline since the end of February.

Italy’s five-year bond yield was little changed at 0.28 percent after the country sold 8 billion euros of securities, including debt that matures in 2021.

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