Italian Bonds Gain on Bill Sale as Spain Debt Jumps, Bunds Trail
January 27, 2012, 1:08 PM ESTBy Lucy Meakin
Jan. 27 (Bloomberg) -- Italian bonds rose, with two-year yields sliding to the lowest since September, after the nation sold bills at lower yields amid mounting optimism Greece is nearing a deal with its creditors.
Spain’s 10-year bonds gained the most this year, extending this month’s advance as the European Central Bank’s provision of three-year loans to banks in December boosted demand. Italy auctioned 8 billion euros ($10.5 billion) of 182-day bills at 1.969 percent, the lowest yield since May. German 10-year bunds underperformed after European Union Economic and Monetary Affairs Commissioner Olli Rehn said authorities were “close” to a deal on Greece, reducing safety demand.
“The market has benefited a bit from the ECB’s long-term repo operation,” said Nick Stamenkovic, a fixed-income strategist at RIA Capital Markets Ltd. in Edinburgh. “The attitude of investors toward the peripherals since the ECB came in has changed decisively, and even though there’s still some uncertainty about Greece, it still hasn’t put investors off” from buying Spanish and Italian bonds.
Italy’s two-year yield fell seven basis points, or 0.07 percentage point, to 3.52 percent at 4:29 p.m. London time after dropping to 3.49 percent, the lowest level since Sept. 2. The 2.25 percent note due in November 2013 climbed 0.11, or 1.1 euros per 1,000-euro face amount, to 97.91.
Ten-year yields declined 15 basis points to 5.9 percent. The extra yield investors demand to hold the debt instead of German bunds narrowed 14 basis points to 4.04 percentage points. The spread was as wide as 5.75 percentage points on Nov. 9.
Spanish Bonds
The Spanish 10-year yield fell 24 basis points to 4.97 percent after dropping as much as 25 basis points, the biggest intraday decline since Dec. 28. The spread over bunds narrowed to as little as 310 basis points, the least since Dec. 21.
“Spain has done very well today, certainly helped by the recent auctions,” Stamenkovic said. “The authorities are showing commitment to fiscal consolidation, they’ve put in structural reforms, and investors for now are giving them the benefit of the doubt.”
German bunds underperformed after Rehn said a deal between Greece and its creditors may come as soon as today, damping demand for safer assets.
“The next three days will be very crucial for the future,” Rehn said at the World Economic Forum in Davos, Switzerland. An agreement may come “if not today, then over the weekend,” he said.
The 10-year bund yield was little changed at 1.86 percent. German bonds underperformed the debt of Italy, Spain, Belgium, Austria, France and Finland.
Greek Deadline
Greece must repay 14.5 billion euros of bonds in March and an agreement that triggers as much as $3.2 billion of default insurance may be necessary unless all bondholders approve, according to Marco Buti, head of the European Commission’s economics division.
Greece’s two-year yield dropped 28.86 percentage points to 171.28 percent, with the price rising to 22.67 percent of face value. The yield surged to a record 206.86 percent on Jan. 23.
Volatility in Greek debt was the highest in euro-area markets today, according to measures of 10-year bonds, the spread between two- and 10-year yields, and credit-default swaps. The change in spread was 11.5 times the 90-day average.
Italian bonds returned 5 percent this month through yesterday, and Spanish debt gained 1.3 percent, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Bunds have handed investors a loss of 0.4 percent this year, after gaining 9.7 percent in 2011.
--With assistance from Paul Dobson in London. Editors: Matthew Brown, Nicholas Reynolds
To contact the reporters on this story: Lucy Meakin in London at lmeakin1@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
