Italy’s Bonds Climb as Draghi Spurs Speculation of ECB Stimulus

Italy’s government bonds advanced for a second week, pushing the 10-year yield down to a record, amid speculation the European Central Bank will broaden its asset purchases to buy sovereign debt.

Austrian and French 10-year rates also dropped to records as ECB President Mario Draghi said yesterday that policy makers would be willing to widen the scope of the central bank’s purchases should the inflation outlook for the region diminish. Spain’s securities also rose for a second week as data showed a slowdown in manufacturing and services output in the currency bloc. Earlier this week, Draghi said buying government bonds could be a policy tool for expanding stimulus.

“Draghi sounded more worried about inflation, which is the single most important reason why the ECB should launch a proper quantitative-easing program,” said Luca Cazzulani, a senior fixed-income strategist at UniCredit SpA in Milan. “The most important beneficiary is the periphery. If the ECB actively starts buying financial assets that would be positive for riskier assets.”

Italy’s 10-year yield fell 13 basis points, or 0.13 percentage point, this week to 2.21 percent as of 5 p.m. London time yesterday, when it reached a record-low 2.207 percent. The 2.5 percent bond due in December 2024 climbed 1.185, or 11.85 euros per 1,000-euro ($1,239) face amount, to 102.67. Spain’s 10-year rate declined 11 basis points to 2.01 percent, the lowest on record.

The rate on equivalent French debt dropped to as low as 1.109 percent, while Austria’s reached 0.941 percent.

ECB Purchases

Irish 10-year yields fell below 1.5 percent for the first time since Bloomberg began collecting data in 1991, touching 1.478 percent yesterday as Draghi said the central bank must drive inflation and inflation expectations higher quickly. The ECB began purchasing asset-backed securities yesterday, part of a stimulus program that already includes record-low interest rates, longer-term bank loans and buying covered bonds.

“If, on its current trajectory, our policy is not effective enough to achieve this, or further risks to the inflation outlook materialize, we would step up the pressure and broaden even more the channels through which we intervene, by altering accordingly the size, pace and composition of our purchases,” Draghi said yesterday at the European Banking Congress in Frankfurt.

Benchmark German 10-year yields fell two basis points this week to 0.77 percent after dropping to a record 0.715 percent on Oct. 16.

Annualized euro-area inflation slowed to 0.3 percent this month from 0.4 percent in October, according to the median forecast of economists in a Bloomberg survey before the data is released on Nov. 28. The ECB targets consumer-price growth at just under 2 percent.

Germany is scheduled to auction 4 billion euros of 10-year bunds next week. It last sold the securities at a record-low average yield of 0.87 percent on Oct. 29. The Netherlands plans to sell debt due in July 2024 on Nov. 25.

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