Bloomberg News

Italian, Belgian Bonds Rise for 2nd Week on Debt Crisis Optimism

December 12, 2011

Dec. 10 (Bloomberg) -- Italian government bonds rose for a second week, leading advances among the euro area’s higher- yielding government securities, as Europe’s leaders boosted their rescue fund in a bid to stem the region’s crisis.

German two-year note yields touched a record low on Dec. 8 as the ECB lowered its benchmark rate by a quarter point to 1 percent and extended the range and maturity of loans it offers to banks. Belgian and Portuguese 10-year bonds rallied. The EU’s leaders said they would channel 200 billion euros ($267 billion) into the International Monetary Fund and tighten anti-deficit rules.

“We have had a marked improvement in sentiment in the past two weeks,” said Michael Leister, a fixed income strategist at WestLB AG in London. “The market is hopeful that the politicians are coming up with a solution which supports Italian bonds. We are cautious because after previous summits we have seen relief and a risk-rally, but the mood has subsequently worsened.”

Italy’s 10-year government bond yields fell 33 basis points over the week to 6.35 percent as of 4:35 p.m. yesterday in London, extending last week’s 58 basis point decline. Two-year Italian yields dropped 58 basis points to 5.99 percent, after declining 1.10 percentage points the previous week.

Belgian 10-year bond yields fell 11 basis points to 4.54 percent and similar-maturity Portuguese rates fell 98 basis points to 12.99 percent.

ECB Cash

ECB President Mario Draghi offered banks unlimited cash for three years on Dec. 8, while damping speculation that the ECB will buy more government bonds to stem the debt crisis. Spanish 10-year government bonds fell for the eighth time in nine weeks, with yields rising six basis points to 5.74 percent. Italian 10- year bonds pared their weekly advance after Draghi’s comments about bond buying.

German two-year note yields were little changed over the week at 0.32 percent, after falling to a record 0.265 percent on Dec. 8.

Italian government bonds may decline next week as the nation sells up to 7 billion euros of one-year bills on Dec. 12 and auctions five-year notes on Dec. 14. Spain plans to sell securities maturing in 2016, 2020 and 2021 on Dec. 15, and 12- and 18-month bills on Dec. 13.

“We have Spain and Italian supply coming up next week so that will be carefully watched and the bonds will react depending on how well they go,” Leister said.

Italian government bonds have handed investors a loss of 7.6 percent this year through Dec. 8, according to indexes compiled by the European Federation of Financial Analysts Societies and Bloomberg. German bunds have returned 8.2 percent, France’s debt has earned 2.6 percent and Spain’s has gained 1.6 percent.

--Editors: Matthew Brown, Tim Farrand

To contact the reporters on this story: Emma Charlton in London at; Paul Dobson in London at

To contact the editor responsible for this story: Daniel Tilles at

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