Spanish and Italian two-year notes climbed for a fourth day, outperforming their 10-year equivalents, amid speculation the European Central Bank will buy the securities in an attempt to calm euro-region turmoil.
German 10-year bunds rose, with yields falling from the highest in a month, after Italy’s Prime Minister Mario Monti warned of a potential breakup of Europe. The additional yield investors demand to hold Spanish 10-year bonds over the nation’s two-year notes rose to a record. ECB President Mario Draghi said on Aug. 2 any bond purchases undertaken by the bank in unison with the European Financial Stability Facility would focus “on the short end of the yield curve.”
“Expectations that the ECB may buy short-dated paper is bolstering” demand for Spanish and Italian notes, said Eric Wand, a fixed-income strategist at Lloyds Banking Group Plc (LLOY) in London. Rates are “increasingly discounting the likelihood that Spain may request help from the EFSF, which would be a precondition of any future buying by the ECB.”
Spain’s two-year yield dropped 48 basis points, or 0.48 percentage point, to 3.48 percent at 4:12 p.m. London time. The 4.75 percent note due July 2014 climbed 0.9, or 9 euros per 1,000-euro ($1,236) face amount, to 102.38. The 10-year yield slid 11 basis points to 6.74 percent.
The yield spread between Spain’s 10-year bonds and two-year notes widened to as much as 343 basis points, the most since Bloomberg began collecting the data in 1993.
Spanish Economy Minister Luis de Guindos has not ruled out requesting aid, telling ABC newspaper at the weekend that his country awaits details of the ECB’s bond-buying proposals before deciding.
The rate on Italian two-year notes slid eight basis points to 3.05 percent, while the yield on the 10-year security was five basis points lower at 6 percent.
Monti, in an interview with Germany’s Der Spiegel magazine published yesterday, said disagreements within the 17-nation euro area are detracting from the policy response to the debt crisis and undermining the future of the European Union. French President Francois Hollande is pushing Italy and Spain to request aid, Italian newspaper la Repubblica reported today without citing anyone.
German Chancellor Angela Merkel’s government backs the ECB action announced by Draghi last week, spokesman Georg Streiter said today. Germany has “no doubt” that the ECB is acting within its mandate, he told reporters at a regular government press briefing in Berlin today.
The yield on German 10-year government bunds fell three basis points to 1.40 percent after earlier rising to 1.44 percent, the highest since July 5. The securities outperformed their French counterparts, which were little changed, yielding 2.11 percent.
German debt returned 3.3 percent this year through Aug. 3, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish securities fell 4.3 percent and Italy’s debt rose 8.5 percent.
Volatility on Portuguese bonds was the highest in euro-area markets today, followed by Spain and Belgium, according to measures of 10-year debt, the spread between two-year and 10- year securities and credit-default swaps.
Portuguese two-year yields dropped 1.11 percentage points to 6.73 percent, while the rate on the nation’s 10-year bond yield fell 51 basis points to 10.47 percent. The rate has plunged by about 7 percentage points since late January.
Greece’s 10-year bonds advanced after the nation and its international creditors agreed on the need to strengthen policy efforts to support the economy and comply with its bailout terms. The announcement comes after nearly two weeks of talks to determine whether Greece continues receiving funds from the country’s 240 billion euros of rescue packages.
The yield on Greek government debt due February 2023 slid 65 basis points to 25.16 percent.
The Netherlands sold 1.24 billion euros of three-month bills at a record-low auction yield of minus 0.051 percent, versus minus 0.041 percent at a previous sale on July 16.
The nation also sold 1.26 billion euros of six-month bills at an average yield of minus 0.02 percent. That compares with a record-low rate of minus 0.029 percent at a sale of similar- dated securities last month.
France sold 3.8 billion euros of three-month bills at an average yield of minus 0.01 percent, unchanged from a previous sale of similar-dated securities on July 30. That compares with a record-low auction yield of minus 0.02 percent on July 23. The nation also sold six- and 12-month bills, at yields of minus 0.01 percent and minus 0.006 percent, respectively.
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