Portuguese 10-year government bonds headed for the biggest two-day advance in a month on speculation Portugal would contain financial woes at one of its banking groups.
Greek debt gained for a second day, even after shares in Banco Espirito Santo SA, Portugal’s second-largest bank, fell as much as 12 percent. A parent company of the bank failed to make some payments on commercial paper, helping trigger declines in Portuguese debt and that of the region’s peripheral nations last week. Spanish bonds were little changed today, as were benchmark German bunds, after a report showed industrial production in the common-currency bloc declined 1.1 percent in May from the previous month.
“Peripheral paper started to recover at the end of last week on the back of some more transparency provided with respect to the issues in the Portuguese banking sector,” said Norbert Aul, a rates strategist at Nomura International Plc in London. “Nonetheless it remains necessary to remain attentive to these developments. We are still constructive on peripheral exposure.”
Portugal’s 10-year yield fell seven basis points, or 0.07 percentage point, to 3.80 percent at 12:16 p.m. London time, after climbing 28 basis points last week, the biggest weekly jump since September. The rate is down 19 basis points in the past two trading days, the biggest drop since the period through June 9. The 5.65 percent security due February 2024 rose 0.56, or 5.60 euros per 1,000-euro face amount, to 114.74.
Two-year Portuguese yields slid eight basis points to 0.94 percent, increasing the extra yield investors demand to hold 10-year bonds over the shorter-dated notes to 284 basis points.
Banco Espirito Santo on July 10 said it had exposure of 1.18 billion euros to companies of Grupo Espirito Santo through loans, securities and other items. The lender also said it has a capital buffer of 2.1 billion euros above the regulatory minimum following a June capital increase.
The rate on Greek 10-year debt declined four basis points to 6.22 percent, while the yield on similar-maturity Spanish bonds was little changed at 2.78 percent. The German 10-year yield was at 1.21 percent.
Banco Espirito Santo shares surged as much as 7 percent today before falling as its board yesterday appointed a new chief executive officer.
The flare-up in Portugal revived memories of its role in the euro-area crisis, which pushed yields across the region’s high debt and deficit nations to euro-era records. That prompted European Central Bank President Mario Draghi’s 2012 pledge to safeguard the region’s monetary union with backstops which helped stanch the selloff. Even after last week’s surge Portugal’s 10-year yields are less than a quarter of their 2012 highs.
Draghi may reveal new details about the ECB’s bank-lending program and possibility of asset-backed securities purchases when he testifies to the European Parliament’s economic and monetary committee in Strasbourg later today.
Portugal’s government securities returned 14 percent this year through July 11, the second-best performing sovereign debt after Greece, according to Bloomberg World Bond Indexes. Italy’s bonds gained 8.7 percent, Spain’s 9 percent and Germany’s earned 5.1 percent.
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