Bloomberg News

Italian, Spanish Bonds Advance as EU Leaders Reach Fiscal Deal

January 31, 2012

Jan. 31 (Bloomberg) -- Italy’s bonds led gains by the securities of Europe’s most-indebted nations after European Union leaders signed a fiscal-discipline treaty, fueling optimism a solution to the debt crisis is getting nearer.

German 10-year bond yields climbed from the lowest in almost two weeks as stocks rose and Greek Prime Minister Lucas Papademos said he was committed to debt-swap talks with bondholders, reducing demand for the debt of Europe’s largest economy as a haven. Belgium’s two-year notes advanced as the country auctioned 2.58 billion euros ($3.4 billion) of treasury bills. Portuguese bonds advanced, pushing 10-year yields down from a record.

“The deal that they did on the fiscal rules was good and that is supporting risk sentiment,” said Niels From, chief analyst at Nordea Bank AB in Copenhagen. “What’s been decided won’t help with the current crisis but will prevent future crises, so it might have a positive short-term impact but I don’t think that will be sustained.”

The Italian 10-year yield fell eight basis points, or 0.08 percentage point, to 6.02 percent at 1:27 p.m. London time, after jumping 20 basis points yesterday, the most since Dec. 12. The 5 percent bond due March 2022 gained 0.515, or 5.15 euros per 1,000-euro face amount, to 93.

German 10-year yields rose two basis points to 1.81 percent.

That pushed the extra yield, or spread, that investors get for holding Italian 10-year bonds instead of German counterparts down by nine basis points to 4.21 percentage points, after jumping yesterday to 4.38 percentage points, the most since Jan. 23. Spanish 10-year bonds yielded 3.21 percentage points more than bunds, down from 3.25 percentage points yesterday.

Greece ‘Committed’

Papademos told reporters after the EU summit in Brussels that he is “strongly committed” to reaching a debt-swap agreement with creditors.

The Stoxx Europe 600 Index gained 1 percent, while futures on the Standard & Poor’s 500 Index advanced 0.4 percent.

Italian bonds have returned 4.9 percent this year, after dropping 5.7 percent in 2011, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Portuguese bonds tumbled 16 percent in January, while Greek securities declined 1.4 percent, the indexes show. German bonds are little changed this month.

Gains by Portugal’s bonds pushed the 10-year yield down by 56 basis points today to 16.84 percent, after climbing to 18.29 percent, the most since the euro’s creation.

Finnish bonds underperformed their German counterparts as the country said it planned to sell new 15-year benchmark bonds. The extra yield that investors get for holding Finnish 10-year bonds instead of bunds climbed four basis points to 48 basis points.

--Editors: Matthew Brown, Nicholas Reynolds

To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net; Emma Charlton in London at echarlton1@bloomberg.net

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


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