Italian Bonds Jump With Spain’s on Prospect of Looser QE Rules

  • Officials said to want to ensure there’s enough debt to buy
  • Such a move may particularly benefit Italian securities

Italian and Spanish bonds extended their advance as the European Central Bank was said to be considering loosening the rules for its debt purchases in the aftermath of the Brexit vote.

A surge late in the European day pushed the yield on Spain’s 10-year bond to the lowest since April 2015 and cut the yield premium investors receive for holding the securities instead of benchmark German debt further below the spread on June 23 -- the day of the referendum when the U.K. voted to leave the European Union. The euro declined.

The ECB is considering liberalizing its quantitative-easing rules to ensure there’s enough debt available to buy in the wake of the U.K. referendum, according to euro-area officials familiar with the discussions. Italian bonds led the advance after one of the people said some Governing Council members favor changing the allocation of asset purchases away from the size of a nation’s economy and toward one more in line with outstanding debt. That would benefit Italy, whose bond market is relatively large compared with the size of its economy.

“It’s the type of thing the market wants to hear,” said Owen Callan, a Dublin-based fixed-income strategist at Cantor Fitzgerald LP in Dublin. “Out with the bunds, in with the bonos,” he said, referring to German and Italian securities.

Spread Narrows

The yield on Italy’s 10-year bond fell 11 basis points, or 0.11 percentage point, to 1.26 percent as of the 5 p.m. London time close. That’s the lowest since April 5. The 1.6 percent security due June 2026 rose 1.05, or 10.50 euros per 1,000-euro ($1,106) face amount, to 103.21.

Spain’s 10-year yield fell nine basis points to 1.16 percent. The Spanish-German yield spread narrowed to 1.29 percentage points, the lowest since May 3. The euro tumbled 0.7 percent to $1.1053 in its first decline in three days.

The prospects of looser central-bank policy has spurred gains in bonds, and a rebound in global stocks, in the wake of Britain’s referendum. Bank of England Governor Mark Carney said Thursday that U.K. officials will probably have to loosen policy within months to deal with the fallout of the Brexit vote.