European Bonds Advance in Week, Buoyed by Central-Bank Optimism

All European government bonds rose this week on optimism central banks around the world will maintain stimulus measures that subdue interest rates.

“There’s a feeling that policy makers will continue to intervene and create support for bonds,” said Alessandro Giansanti, a senior rates strategist at ING Groep NV in Amsterdam. “Core bonds will stay supported.”

Ten-year Italian yields reached the lowest level in more than a week today after Interior Minister Angelino Alfano survived a no-confidence vote in the nation’s Senate. Portugal’s 10-year bonds rose after President Anibal Cavaco Silva said he remained confident the nation could overcome political turmoil. U.S. Treasury Secretary Jacob J. Lew said he would press his European counterparts at a Group-of-20 meeting to spur growth.

Italian 10-year yields were little changed at 4.41 percent at 4:18 p.m. London time, a decline of seven basis points, or 0.07 percentage point, in the week. The rate touched 4.36 percent, the lowest level since July 11. The price of the 4.5 percent bond due in May 2023 was 101.075.

The two-day meeting of G-20 finance ministers and central bank governors started today, after Federal Reserve Chairman Ben S. Bernanke this week buoyed optimism that measures to restore growth will be maintained when he testified to U.S. lawmakers. The European Central Bank said yesterday it was looking at ways to boost lending to small- and medium-sized companies by revising its collateral rules.

Italian Concern

Germany’s 10-year bund yield was little changed at 1.52 percent, after dropping to 1.50 percent, the lowest since June 7. The 10-year rate has fallen four basis points this week. The yield will drop to 1.40 percent in the next few weeks, Giansanti predicted.

Italy’s two-year note yield dropped five basis points today to 1.60 percent on optimism the confidence vote will help overcome investor concern that Italy’s ruling coalition, led by Prime Minister Enrico Letta, is fraying. Letta won support yesterday from President Giorgio Napolitano, who urged disgruntled lawmakers to maintain backing for the government. Political instability could weaken Italian sovereign debt, raising borrowing costs, the 88-year-old head of state said.

“The vote of no confidence in the Senate went OK and that’s a positive, which is helping the bonds,” said Owen Callan, an analyst at Danske Bank A/S in Dublin. “It’s an uncertainty that’s now out of the way.”

Portuguese Negotiations

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

Portuguese bonds had their first weekly advance in nine weeks as talks continued between the nation’s ruling coalition parties and the main opposition Socialist Party. A fifth round of meetings yesterday failed to produce a deal on how to meet the terms demanded by a European Union-led bailout.

“Things are going as expected,” Cavaco Silva said in comments broadcast by TVI television station yesterday. “I’m confident, but I’m not sure what the final outcome will be.”

Portugal’s 10-year yield declined 20 basis points to 6.82 percent for a 69 basis-point drop this week.

“Portugal is proving to be one of the more sensitive markets to domestic political events,” Citigroup Inc. strategist Peter Goves wrote in an e-mailed note to clients. “Although the full impact of the unfolding politics is unclear at this stage, such events do little to harness a perception of stability.”

Italy’s bonds returned 2.6 percent this year through yesterday, according to Bloomberg World Bond Indexes. German securities handed investors a loss of 0.6 percent, while Spanish bonds earned 6 percent.