Italian, Spanish Debt Gains on Euro Optimism
Wednesday, 22 February 2012 | 00:00
Italian and Spanish bonds advanced amid optimism the euro-area debt crisis will be contained after finance ministers agreed on a second bailout for Greece.
German two-year note yields touched a two-month high after Greece won 130 billion euros ($173 billion) in aid following overnight talks in Brussels. Investors agreed to losses on Greek bonds that may reduce the nation’s debt by as much as 107 billion euros as part of the accord. Spain auctioned 2.5 billion euros of 84- and 182-day bills, while the European Financial Stability Facility sold 1.99 billion euros of 182-day bills.
“Spain and Italy had the most to lose from a contagion effect if things had gone wrong, so they are the ones seeing the most relief,” said John Davies, a fixed-income strategist at WestLB AG in London. “To a large degree, a resolution in Greece was priced in so anything we see that’s positive today will be more of a sigh of relief than a shout of joy.”
The Italian 10-year yield slid four basis points to 5.44 percent at 11:26 a.m. London time after reaching 5.36 percent, the lowest since Sept. 9. The 5 percent bond due March 2022 rose 0.305, or 3.05 euros per 1,000 euro ($1,325) face amount, to 97.195. Two-year note yields fell six basis points to 2.92 percent, after earlier reaching 2.86 percent, the least since April 14.
The additional yield, or spread, investors demand to hold Italy’s 10-year government debt over similar-maturity benchmark bunds fell five basis points to 347 basis points. Spanish 10- year bond yields declined two basis points to 5.14 percent, narrowing the spread with bunds to 317 basis points.
The assistance for Greece brings to at least 386 billion euros the sum spent or committed to save it, Ireland and Portugal from bankruptcy, and to insulate Europe from a financial cascade that may endanger the 13-year old monetary union. Concern the turmoil could spread to Europe’s third and fourth largest economies last year drove Italian and Spanish 10- year yields to euro-era highs.
“The Greece deal looks comprehensive, reasonable, of course, and seems to be richer in detail than the European Union summit results, implying a lower risk of market disappointment,” said Marius Daheim, a senior fixed-income strategist at Bayerische Landesbank in Munich. “I expect an only moderate bond-market reaction, with bunds lower and peripheral bonds firmer.”
The Greek March 2012 note traded at 34.335 percent of face value, down from 42 percent on Feb. 16. Greece’s two-year note rose, pushing the yield down 487 basis points to 191 percent. The price rose to 21.595 percent of face value.
The benchmark 10-year bund yield was one basis point higher at 1.97 percent. The German two-year note yield was little changed at 0.26 percent, after rising to 0.29 percent, the highest since Dec. 15.
German bunds have handed investors a loss of 0.6 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Greek bonds declined 4.1 percent, the data show.