Euro-Region Bonds Rise With ECB Seen Outweighing Political Risks

  • Portuguese debt recovers after opposition ousts PM Coelho
  • Germany's two-year note yield declines to record low

Euro-area government bonds advanced, pushing German two-year note yields to a record low, as the prospect of additional European Central Bank monetary stimulus overshadowed increasing political risks in individual nations.

Portugal’s 10-year securities rose for a second day even after Prime Minister Pedro Passos Coelho was voted down by a loose alliance of left-wing parties. Spain’s 10-year bond yields posted their biggest two-day drop in three weeks as the country heads toward a December national election that polls suggest is too close to call. Italy’s securities were supported before the nation auctions debt on Thursday.

Investors are largely positive on the securities of periphery governments because their debt is set for purchases by the ECB until at least September. ECB President Mario Draghi, who has signaled that officials will consider employing more stimulus at next month’s policy meeting, refrained from discussing the outlook for inflation or monetary policy in a prepared speech in London.

“The backdrop of the ECB being there and being ready to act is a big plus” for bonds, said Orlando Green, a fixed-income analyst at Credit Agricole SA’s corporate and investment-banking unit in London. “The periphery should remain supported” even if the debt gets undermined by localized concerns from time to time, he said.

Yields Slide

Benchmark German 10-year bund yields fell one basis point, or 0.01 percentage point, to 0.61 percent as of 4:17 p.m. London time. The 1 percent security due in August 2025 rose 0.115, or 1.15 euros per 1,000-euro ($1,073) face amount, to 103.695. Two-year note yields reached minus 0.362 percent.

A negative yield means investors buying the securities now will get back less upon maturity than they paid.

Spain’s 10-year bond yield fell three basis points to 1.83 percent, pushing its two-day decline to 13 basis points, the biggest back-to-back drop since Oct. 22. The bonds fell on Nov. 9 as the Catalan parliament voted to begin the process of seceding from Spain.

Portugal’s 10-year bond yield slid three basis points to 2.74 percent, down from an almost four-month high of 2.91 percent reached on Nov. 9. The yield on similar-maturity Italian securities decreased five basis points to 1.63 percent. The Rome-based Treasury plans to auction as much as 5.5 billion euros of debt due between 2018 and 2040 on Thursday.

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