Bloomberg News

Spanish, Italian Bonds Rise as ECB Said to Purchase Their Debt

November 18, 2011

Nov. 18 (Bloomberg) -- Spanish and Italian bonds rose, paring weekly declines, as the European Central Bank was said to buy both of the nations’ debt in its fifth consecutive day of sovereign purchases.

Spanish two-year notes snapped a seven-day losing streak while French bonds climbed for a third day relative to German bunds. European officials may start talks with the International Monetary Fund on a mechanism for the ECB to lend to the IMF for sovereign bailouts in Europe, Dow Jones Newswires reported. German bonds headed for a weekly drop as Japanese data showed investors are reducing their holdings of bunds and French debt.

“The market, be it peripherals or be it bunds, it’s all trading off these expectations” of ECB buying, said Marius Daheim, a senior fixed-income strategist at Bayerische Landesbank in Munich. “Once you see the ECB come into the market, it’s a damping factor for bunds.”

Ten-year Italian yields fell 21 basis points, or 0.21 percentage point, to 6.63 percent at 4:32 p.m. London time, trimming this week’s increase to 18 basis points. The 4.75 percent bond due in September 2021 rose 1.335, or 13.35 euros per 1,000-euro ($1,353) face amount, to 87.335.

The rate on Spanish bonds maturing in April 2021 declined 11 basis points to 6.38 percent. Two-year yields fell six basis points to 5.43 percent.

Buying Italy

Five people with knowledge of the deals said the ECB bought Italian securities today and three said it purchased Spanish debt. They asked not to be identified because the trades are private. A spokesman for the central bank in Frankfurt declined to comment when contacted by phone.

Finance Minister Elena Salgado said Spain wants the ECB to continue buying bonds “powerfully” to ease tensions in financial markets even as she said the nation’s debt is sustainable.

Spanish Prime Minister Jose Luis Rodriguez Zapatero said yesterday the European Commission and ECB should act “immediately” to stem the crisis. The ECB would quickly lose credibility if it departed from its primary role of keeping prices stable, ECB President Mario Draghi said in a speech in Frankfurt today.

Agreement on the ECB-IMF proposal may result in an announcement at a European Union summit on Dec. 9, Dow Jones reported today, citing two unidentified people with direct knowledge of the matter.

Bunds Fall

Ten-year German bond yields climbed seven basis points to 1.96 percent. The difference in yield between French bonds and benchmark German securities narrowed 25 basis points to 150 basis points, and the spread between 10-year Austrian and German bonds narrowed 25 basis points to 144 basis points.

Bunds gained earlier after German newspaper Frankfurter Allgemeine Zeitung reported the ECB set a 20 billion-euro weekly limit for its bond purchases.

While the ECB is resisting pressure to backstop the currency region and combat the crisis by printing money, it was said to buy debt this week to stem contagion from the regional crisis that pushed French, Austrian and Belgian bond yields to records this week relative to German bunds.

Under its Securities Market Program, the ECB settled purchases of 4.48 billion euros of purchases through Nov. 11, from 9.5 billion euros the week before.

Spanish two-year note yields have still increased 74 basis point this week, and Italian two-year rates climbed 43 basis points to 6.13 percent.

Japan Investors

German and French bonds declined today as data from Japan’s Ministry of Finance showed investors have been reducing their holdings of the nations’ securities this year, while adding Australian government bonds.

Japanese investors added 853 billion yen ($11.1 billion) of Australian bonds and notes from January to September, according to Ministry of Finance data. They reduced holdings of German debt by 1.5 trillion yen, and sold a net 236 billion yen of French securities, while also cutting investments in Italy, Ireland, Portugal and Greece.

German bunds returned 8.3 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish debt handed investors a 1.9 percent loss, while Italian securities lost 8.8 percent.

--With assistance from Monami Yui in Tokyo and Candice Zachariahs in Sydney. Editors: Nicholas Reynolds, Matthew Brown

To contact the reporter on this story: Paul Dobson in London at pdobson2@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net


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