Euro Bonds Surge on ECB Shock Waves

Euro-area government bonds surged this week, propelling yields across the currency bloc to record lows, as an unprecedented package of European Central Bank stimulus measures added fuel to this year’s rally.

Yields from Belgium to Spain fell to the least on record and Germany’s five-year rates dropped to the lowest in more than a year. ECB President Mario Draghi said two days ago the central bank would start work on a quantitative-easing-style plan to purchase asset-backed debt and introduce a program to encourage banks to lend as he sought to counter slowing inflation.

“The ECB does not disappoint, with a substantive package,” David Riley, who helps oversee over $62 billion of assets as head of credit strategy at BlueBay Asset Management LLP in London, wrote in an e-mailed note yesterday. “The preference for credit easing rather than pure QE is positive for risk assets, including peripheral spreads.”

Spain’s 10-year yields fell 22 basis points, or 0.22 percentage point, this week to 2.64 percent at the 5 p.m. London close yesterday, and touched 2.612 percent, the least since Bloomberg began compiling the data in 1993. The 3.8 percent bond due in April 2024 rose 1.92, or 19.20 euros per 1,000-euro ($1,364) face amount, to 109.98.

The ECB measures, which included cutting the main refinancing rate to a record 0.15 percent and moving the deposit rate below zero, stoked gains in European bonds, which have surged as the region’s debt crisis abated. Greece and Portugal led euro-region securities to a 6.1 percent return this year through June 5, versus 2.9 percent for Treasuries, according to Bloomberg World Bond Indexes.

Italian Rally

The rate on 10-year Italian debt fell 20 basis points in the week to 2.76 percent and set an all-time low of 2.723 percent yesterday, while that on similar-maturity French bonds fell to 1.656 percent, the least since Bloomberg began compiling the data in 1990. Belgium’s 10-year yield tumbled as low as 1.771 percent and Ireland’s reached 2.424 percent.

German five-year note yields slid as low as 0.352 percent, the least since May 2013.

The Netherlands plans to sell as much as 3.5 billion euros of notes due in 2017 on June 10. Germany will auction 4 billion euros of debt due in 2016 the following day and Italy will offer bonds on June 12. Portugal plans to sell as much as 750 million euros of securities on June 11 in the nation’s first auction since exiting its three-year bailout program.

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