Bloomberg News

Italian, Spanish Bonds Rise on Bets Greece Is Closer to Aid Deal

February 18, 2012

Feb. 18 (Bloomberg) -- Italian bonds rose for a sixth week, the longest run of gains since August 2006, on speculation European officials were closing in on a deal to grant Greece a second financial bailout package.

Spanish government debt also rose, snapping two weeks of losses, as the country met its 4 billion-euro ($5.3 billion) funding target at a sale of notes and bonds. The European Central Bank swapped Greek bonds that it bought under its Securities Market Program for new ones, euro-area officials said. The exchange may pave way for a private-sector bond deal and convince the region’s finance ministers to agree to provide an aid package when they meet in Brussels on Feb. 20.

“There are a lot of uncertainties still, but at least the market seems to no longer think the remaining details will be sufficiently dangerous and difficult to derail the whole process,” said Luca Jellinek, head of European fixed-income strategy at Credit Agricole Corporate & Investment Bank in London. “This has supported semi- and peripheral bonds.”

Italy’s 10-year yield fell three basis points, or 0.03 percentage point, in the week to 5.58 percent at 4:13 p.m. London time yesterday. The two-year yield dropped five basis points to 3.06. Spanish 10-year rates declined five basis points from last week to 5.25 percent.

Italian bonds have been the best performers among euro- region investment-grade bonds this month, handing investors a 2.2 percent return, followed by a 2.1 percent gain on Irish bonds, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. The securities have rallied as the risk of contagion from a Greek restructuring wanes. Portuguese bonds surged 23 percent.

Bunds Fall

German 10-year bonds fell yesterday after Italy’s Prime Minister Mario Monti, German Chancellor Angela Merkel and Greek Prime Minister Lucas Papademos expressed optimism an agreement on Greece can be reached. Bunds were little changed on the week after wrangling among euro-area finance ministers had raised the prospect of a bailout delay.

Germany will sell as much as 5 billion euros of new two- year notes maturing in March 2014 on Feb. 22 while Italy will offer zero-coupon and index-linked bonds at auction two days later. France, the Netherlands, Spain and the European Financial Stability Facility will sell securities due within one year.

--Editor: Paul Dobson, Nicholas Reynolds

To contact the reporters on this story: Anchalee Worrachate in London at +44-20= aworrachate@bloomberg.net

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


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