Saturday, November 15, 2014

Italy’s Bonds Rise With Spain’s as Official Signals ECB Stimulus

Italian and Spanish bonds rose for the first time in three days as European Central Bank policy maker Christian Noyer said in an interview officials would consider buying government debt to stimulate euro-area growth.

Ireland’s 10-year yields dropped to a record as a German report showed the region’s largest economy barely grew in the third quarter, strengthening the case for the ECB to begin measures that typically boost the value of the targeted securities.

Almost two-thirds of investors in a Bloomberg Global Poll said the euro-area economy is weakening while 89 percent saw disinflation or deflation as a greater threat than inflation.

“Demand for peripheral bonds remain underpinned” by speculation the ECB will buy government debt, said Mathias Van Der Jeugt, a fixed-income strategist at KBC Bank NV in Brussels.

“As long as the ECB keeps that door open, you get this bottom under the market” keeping prices from falling, he said. Italy’s 10-year yield fell three basis points, or 0.03 percentage point, to 2.35 percent at 4:29 p.m. London time after rising four basis points in the previous two days.

The 2.5 percent bond due in December 2024 rose 0.23, or 2.30 euros per 1,000-euro ($1,248) face amount, to 101.445. The rate slipped to 2.31 percent on Nov. 12, the lowest since Oct. 15. The yield on similar-maturity Spanish debt declined one basis point to 2.13 percent.

Ireland’s 10-year bonds rose for a seventh day, pushing the yield down as much as three basis points to a record 1.571 percent.

ECB Stance

ECB Governing Council member Noyer told French daily newspaper Les Echos that the central bank could buy state or company debt if it decided that its policies weren’t having any effect. Benchmark German 10-year bunds rose a fourth day as a report showed gross domestic product increased 0.1 percent in the three months through September.

Yields dropped one basis point to 0.79 percent, leaving them three basis points lower in the week. Thirty-eight percent of investors surveyed this week described the global economy as worsening, more than double the number who said that in the last poll in July and the most since September 2012, when Europe was mired in a recession.

Much of the concern is again focused on the euro area, with the respondents saying the ECB and the region’s governments are making the situation worse by pursuing too-tight policies.

European Growth

For the euro area economy as a whole, GDP (EUGNEMUQ) increased 0.2 percent in the third quarter from the previous period, when it rose 0.1 percent, Eurostat, the European Union’s statistics office in Luxembourg, said today.

That’s more than the 0.1 percent median estimate of economists in a Bloomberg News survey. The underlying picture for the region “is still very fragile” and the argument for more stimulus from the ECB still stands, said Nick Stamenkovic, a fixed-income strategist at broker RIA Capital Markets Ltd. in Edinburgh.

Volatility on Belgian bonds was the highest in the euro area today, followed by those of Ireland and the Netherlands, according to measures of 10-year debt, the yield spread between two- and 10-year securities and credit-default swaps. Belgium’s 10-year yield dropped two basis points to 1.07 percent.

ECB President Mario Draghi said last week that policy makers commissioned proposals for fresh stimulus.

The central bank, which forecasts growth of 0.9 percent this year and 1.6 percent in 2015, last week endorsed weaker projections such as those by the European Commission that foresee expansions of 0.8 percent and 1.1 percent, respectively, before it publishes its own updated outlook next month.

Greece’s bonds rose as Eurostat said the nation ended its worst recession in more than a half-century, with GDP increasing 0.7 percent in the third quarter.

Greek 10-year yields fell 10 basis points to 8.05 percent. Italian securities returned 12 percent this year through yesterday, according to Bloomberg World Bond Indexes. Spain’s earned 13 percent, Ireland’s 12 percent and Germany’s 8.3 percent.

bloomberg.com

No comments: