Spanish Bonds Rise With Italy’s as Fed Rate Boost Seen Delayed

  • Fading prospect of imminent rate increase lifts riskier assets
  • Fed, Brexit are biggest drivers of bond market, DZ Bank says

Bonds from Spain and Italy rose after Federal Reserve Chair Janet Yellen reassured investors that she won’t jeopardize the U.S. economy with a premature interest-rate increase, boosting appetite for higher-yielding assets.

Italy’s 10-year bond yield fell from a two-week high as the MSCI All Country World Index of stocks headed for its strongest close since April. Other risk events were also seen diminishing. The pound beat all but two of its 16 major peers after opinion polls released late Monday showed the referendum on Britain’s European Union membership is still too close to call -- despite speculation that the ‘Leave’ campaign was pulling ahead.

“Comments from Yellen suggesting that a Fed rate hike is not around the corner offer some support to risky assets, including oil, equities and, by extension, peripheral markets,” said Patrick Jacq, a senior fixed-income strategist at BNP Paribas SA in Paris. “The rebound in stock markets offers evidence of a firmer appetite for risk.”

Spanish and Italian securities are “recovering slightly after days of underperformance versus cores,” he said.

Shrinking Spread

Italy’s 10-year bond yield fell four basis points, or 0.04 percentage point, to 1.43 percent as of 3:15 p.m. in London, a day after touching 1.50 percent. The 1.6 percent security due June 2026 rose 0.4, or 4 euros per 1,000-euro ($1,137) face amount, to 101.67.

The extra yield the nation’s securities offer over benchmark 10-year German bunds narrowed to 1.37 percentage points, from a three-month high of 1.42 percentage points on Monday. Spain’s 10-year yield dropped five basis points to 1.47 percent.

“The Fed and Brexit” are the biggest drivers of European bonds, said Daniel Lenz, a market strategist at DZ Bank AG in Frankfurt. “As a result of yesterday’s speech by Janet Yellen, June is now clearly off the table and a hike in July would depend on the next economic data as well as the outcome of the Brexit vote.”

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