Peripheral Bonds Hold Gains as Greek Lawmakers Vote for DealLucy Meakin
Italian and Spanish government bonds held a seven-day advance after Greek lawmakers voted to back a package of austerity measures needed to secure the country’s third bailout in five years.
German bunds, the euro area’s benchmark sovereign securities, were little changed after the 229 members of the 300-seat parliament in Athens approved austerity measures that are a precondition of as much as 86 billion euros ($94 billion) in aid. The region’s bond markets have swung back and forth on shifts in sentiment toward Greece in recent weeks, though moves have been damped by investor speculation the European Central Bank would provide support in the event of a Greek exit. ECB Governor Mario Draghi will speak at a news conference in Frankfurt Thursday.
“The key determinant in terms of market movements will be when it wakes up to the result of the vote in the Greek parliament,” said Richard McGuire, head of European rates strategy at Rabobank International in London. “The passage of that vote will likely underpin market sentiment, which one would expect should potentially see further narrowing of peripheral spreads.”
Italy’s 10-year bond yield was little changed at 2.01 percent as of 7:34 a.m. London time. The price of the 1.5 percent security due in June 2025 was 95.57 percent of face value.
The yield on Spain’s 10-year bond was little changed at 2.01 percent, having earlier dropped below 2 percent for the first time in six weeks, touching 1.99 percent. The seven-day advance is the longest winning streak since August. Germany’s 10-year bund yielded 0.82 percent.
Despite ECB’s purchases, peripheral bonds have still felt the effects of the financial turmoil in Greece. Italy’s 10-year yield surged to an 11-month high of 2.72 percent on June 29 after Greek Prime Minister Alexis Tsipras announced a referendum on further austerity measures, which sparked speculation the result may lead to the euro area’s most-indebted nation’s exit from the bloc.
Yields have declined since Tsipras agreed to a deal with Greece’s creditors on July 13. The additional yield, or spread, investors demand to hold Italy’s 10-year bonds over equivalent German bunds narrowed to 118 basis points Wednesday, the least since May 15 based on closing-price data.
The central bank purchased 63.3 billion euros of public and private securities last month under its quantitative-easing plan, data released on July 6 showed. It has purchased 31.6 billion euros of Italian debt and 22.7 billion euros of Spanish securities since it began the program in March.