Italian bonds rose, snapping a decline from yesterday, as European Central Bank executive board member Benoit Coeure said the institution will do everything it can within the terms of its mandate to preserve the euro.
Spanish securities also gained as Coeure’s comments echoed ECB President Mario Draghi’s pledge in July to do “whatever it takes” to defend the currency. So-called peripheral bonds slid yesterday as a bailout agreement for Cyprus failed to convince investors that fallout from its banking crisis would be contained. German bunds fell as demand for the region’s safest assets waned. France sold new 30-year bonds via banks.
“There’s still a grab for yield,” said Marc Ostwald, a fixed-income strategist at Monument Securities Ltd. in London. “It shows the market still believes in Draghi’s promise. The yields in Spain and Italy are far more attractive than what you can get in bunds.”
Italy’s 10-year yield fell three basis points, or 0.03 percentage point, to 4.59 percent at 4:18 p.m. London time after jumping 10 basis points yesterday. The 5.5 percent bond maturing in November 2022 gained 0.205, or 2.05 euros per 1,000-euro ($1,286) face amount, to 107.435.
Spain’s 10-year yield dropped two basis points to 4.94 percent after declining to 4.70 percent on March 12, the lowest level since November 2010.
“The ECB will do everything it can to defend the integrity of the euro, with one qualification: it does it within the limit of its mandate and its competences,” Coeure said on Europe 1 radio. “Cypriot banks have been supported by the ECB for several months as it provided tens of billions of euros in liquidity. The Cypriot financial system was kept afloat by the ECB,” he said.
Cyprus’s bonds fell for a third day, with the yield on the 4.625 percent security due in February 2020 rising 41 basis points to 13.86 percent. The bid price was 60.78 while the offer price was 62.36.
While Italian borrowing costs jumped yesterday, 10-year yields remained below the high of 4.68 percent they reached on March 15, the day before European Union finance ministers attempted to impose an unprecedented levy on bank deposits as a condition of emergency funds to Cyprus.
“Spanish and Italian yields are still below 5 percent,” said Michael Markovich, head of global interest-rate research at Credit Suisse Group AG in Zurich. “Markets have really calmed down. The ECB backstop has been the main ingredient.”
Italian bonds were also supported after Reuters reported the International Monetary Fund will publish a statement on the nation’s financial stability at 5 p.m. London time, expressing a “substantially positive” view of the banking system.
German bunds fell as the nation confirmed it would sell 65 billion euros in bonds and bills in the second quarter.
The 10-year bund yield climbed one basis point to 1.34 percent after dropping to 1.34 percent yesterday, the lowest level since Jan. 2.
“The bond markets are moving one way and then another this week with exaggerated moves, and now people are taking stock of the situation,” said Orlando Green, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “The bailout seems to have been resolved, but that doesn’t mean things are better going forward. There are still many hurdles that need to be cleared.”
France sold 4.5 billion euros of a new bond due in May 2045 at a yield of 3.263 percent.
The Netherlands sold 2.23 billion euros of five-year notes at a record-low yield of 0.727 percent, down from 0.884 percent at the previous sale of the securities on Feb. 12. Italy auctioned 8.5 billion euros of six-month bills at 0.831 percent, versus 1.237 percent on Feb. 26.
Volatility on French bonds was the highest in euro-area markets today followed by those of Belgium and Austria, according to measures of 10-year debt, the yield spread between two- and 10-year securities, and credit-default swaps.
Italian bonds returned 0.9 percent this month through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish bonds earned 0.6 percent, while German bunds gained 0.7 percent.
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