Spanish Bonds Beating Italy’s by the Most in a Year and a Half

  • Ten-year yield spread widens on political divergence
  • Spain is best performer among euro-area peers in past month

Spain’s government bonds are outperforming their Italian peers as the nations’ political fortunes diverge.

The yield premium that investors demand for holding Italian 10-year securities instead of similar-maturity Spanish debt has risen to the most in more than 18 months. Spain’s government bonds posted the biggest returns among euro-area sovereign securities in the past month, according to Bloomberg World Bond Indexes.

Spain moved closer this week toward forming a government after acting Prime Minister Mariano Rajoy made progress in alliance talks with the liberal party Ciudadanos, while Italy is facing increased pressure on its banks and a referendum in the fourth quarter that may cost Premier Matteo Renzi his job.

“In Spain, the political situation seems to be improving,” said Patrick Jacq, a senior fixed-income strategist at BNP Paribas SA in Paris. “At least, less uncertainty and this is favorable for Bonos,” he said, referring to the nation’s sovereign securities.

Spain’s 10-year bond yield rose four basis points, or 0.04 percentage point, to 0.96 percent as of 4:48 p.m. London time, having dropped to an all-time low of 0.91 percent on Thursday. The 1.95 percent security due in April 2026 fell 0.4, or 4 euros per 1,000-euro ($1,133) face amount, to 109.14.

The yield on similar-maturity Italian debt increased six basis points to 1.14 percent. That left the spread between the securities at 18 basis points, the widest on a closing-price basis since January 2015. As recently as June, the yield on the Iberian nation’s bonds was higher than that of Italy’s.

For a story on Italy’s stock market woes, click here.

Spanish sovereign securities handed investors a return of 2.1 percent in the past month through Thursday, Bloomberg World Bond Indexes show. Italian government debt earned 1.3 percent, while benchmark German debt gained 0.4 percent.

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