Spanish Bonds Lead Euro-Area Gains With Portugal as Auctions End

  • Greek notes lag behind peers as talks with creditors stall
  • German 10-year yield drops from highest level this month

Europe’s higher-yielding bonds led advances in the region as investors’ focus returned to the sluggish economy and the support of the European Central Bank’s purchases.

The securities reversed declines that had been spurred by sales of longer-dated debt in core markets including France. The extra yield, or spread, that investors get for holding Spanish 10-year bonds instead of similar-maturity German bunds narrowed as a recovery in stocks across the region fueled demand for securities that are perceived to be riskier or lower-rated. Portugal’s 10-year bond yield fell the most in six weeks.

“It’s clearly a risk-on environment today and the peripherals have benefited from that,” said Nick Stamenkovic, a fixed-income strategist at Edinburgh-based broker RIA Capital Markets Ltd. “The prospect of increased ECB purchases is also a positive factor. But political uncertainty still persists, so you have to distinguish between the peripheral countries, and I’m certainly cautious toward Portugal and Spain at this juncture.”

Italy’s sovereign bonds rose even as the nation auctioned 8.25 billion euros ($9.3 billion) of debt, including securities due in March 2047. That’s partly because it’s scheduled to hand back almost twice as much cash when it repays holders of a five-year bond that matures Friday, helping to support prices.

Greece Trailing

Greek bonds trailed behind their peers, with the yield on 2017 notes climbing to the most since February. Talks with its creditors failed to produce the approval needed to release funds from the country’s third bailout. Greek Prime Minister Alexis Tsipras is scheduled to meet French President Francois Hollande later on Wednesday.

Spain’s 10-year bond yield fell eight basis points, or 0.08 percentage point, to 1.47 percent as of 4:46 p.m. London time. The 1.95 percent security due in April 2026 gained 0.735, or 7.35 euros per 1,000-euro face amount, to 104.50. Yields on similar-maturity Italian debt fell eight basis points to 1.30 percent, and on Portuguese 10-year securities by 20 basis points to 3.24 percent.

Benchmark German 10-year bund yields fell from the highest this month, slipping three basis points to 0.13 percent.

Bonds were supported before data on Thursday that will confirm the annual inflation rate in the euro area was negative in March, according to a Bloomberg survey of economists, reinforcing the argument for the ECB to maintain its stimulus.

Maturing Debt

While the central bank started April 1 to boost its monthly purchases, demand for securities is also being supported by speculation that investors will reinvest proceeds from maturing debt back into the market.

“In the selloff, inflation expectations did not move, so it was just a supply-demand imbalance,” said Patrick Jacq, a senior fixed-income strategist at BNP Paribas SA in Paris. “Now it’s behind us and the prospect is that of a couple of weeks with strong negative supply. ”

Italy allotted 1.29 billion euros of bonds due in March 2047 at an average yield of 2.49 percent, compared with 2.71 percent at a previous 30-year debt auction on Nov. 12. The Rome-based Treasury also sold bonds due in April 2019, March 2023 and March 2030.

Greece’s note due in July 2017 rose 115 basis points to 12.31 percent.

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