Italy Bonds Rise as EU Opens Way for Growth Budgets

Italy’s bonds advanced for the first time in three days after European Union finance ministers opened the way for looser budget policies that may support growth.

German 10-year bunds fell as euro-area retail sales increased in January more than economists predicted, sapping demand for the safest assets. Portugal’s 10-year yields dropped to the least in more than a month after EU Economic and Monetary Affairs Commissioner Olli Rehn, in Brussels for a meeting of the bloc’s finance ministers, said the country and Ireland may get more time to repay bailout loans. Global stocks and commodities rallied on bets central banks will continue stimulus measures.

“There’s a more general risk-on sentiment today” driving Italian yields lower, said Chiara Cremonesi, a fixed-income strategist at UniCredit SpA in London. “Bunds are weak as well. It could be that this meeting is also having some impact,” she said of the finance ministers’ gathering.

Italy’s 10-year yields fell 15 basis points, or 0.15 percentage point, to 4.73 percent at 4:51 p.m. London time after sliding 16 basis points, the steepest decline since Feb. 25. The 5.5 percent security maturing in November 2022 gained 1.155, or 11.55 euros per 1,000-euro ($1,302) face amount, to 106.325.

The EU is considering easier repayment terms for rescue loans to Ireland and Portugal in a bid to ease their exit from aid programs, Rehn said. The nations say they deserve concessions similar to those granted to Greece last year.

Economic Strains

The yield on the Portuguese 4.95 percent securities due October 2023 fell 23 basis points to 6.16 percent, after being as low as 6.13 percent, the least since Feb. 1. Rates on Irish debt due October 2020 fell seven basis points to 3.76 percent. The yield has fallen from 4.43 percent on Dec. 31.

Volatility on Sweden’s bonds was the highest in euro-area markets, followed by those of Portugal, according to measures of 10-year debt, the yield spread between two- and 10-year securities, and credit-default swaps.

Economic strains in the euro area “may also justify in a certain number of cases reviewing deadlines for the correction of excessive deficits,” Rehn told reporters late yesterday.

Leaders “do not want to add austerity to recession,” French Finance Minister Pierre Moscovici said. The euro-area economy will shrink 0.3 percent in 2013, making for the first annual back-to-back contraction since the currency’s introduction in 1999, the European Commission said last month.

Spanish Bonds

Spanish 10-year bonds advanced for a fifth day, leaving the yield six basis points lower at 5.04 percent.

The extra yield, or spread, that investors get for holding Spain’s 10-year debt instead of bunds slipped nine basis points to 359 basis points. The spread has narrowed from 412 basis points on Feb. 26, which was the most since Dec. 12.

The gap may narrow to 250 basis points as swings in prices ease, Carlos Egea, a strategist on Morgan Stanley’s peripheral sovereign and bank trading desk, said at a Euromoney Bond Investors Congress today in London, where he’s also based. It is “hard to know” if that will take three, six or 12 months, he said.

“It’s risk-on with regard to peripheral bond markets,” Christian Eckert, head of European fixed income at Lazard Asset Management, which oversees the equivalent of $9.7 billion, said at the conference. Buying bonds of the so-called peripheral nations is a “compelling” trade, Cosimo Marasciulo, head of government bonds and currencies at Pioneer Investment Management Ltd., added.

Retail Sales

German 10-year bund yields added three basis points to 1.45 percent, rising from as little as 1.39 percent yesterday, the least since Jan. 2. Two-year note yields rose two basis points to 0.06 percent.

Retail sales in the 17-nation currency bloc gained 1.2 percent from December, when they slipped a revised 0.9 percent, the EU’s statistics office in Luxembourg said today. The median prediction of analysts in a Bloomberg News survey was for a 0.3 percent gain.

Belgium’s 10-year bonds snapped five days of gains as the country’s finance minister resigned, pushing the yield up by two basis points to 2.30 percent. The nation sold 3.1 billion euros of bills due in 105 and 161 days today.

Steven Vanackere quit after 15 months on the job, saying he was the target of “unjustified insinuations and malicious accusations” over his role in a transaction involving state-owned Belfius Bank and a workers’ organization. He will be succeeded by Koen Geens, a lawyer and director at BNP Paribas Fortis SA, the Belgian Royal Palace said.

Italian bonds handed investors a loss of 1 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish securities returned 2.9 percent, while German bunds fell 0.3 percent.

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