Spanish Bonds Advance On Central Bank Action Speculation

26.07.2012 12:23

Bloomberg: Spanish government notes gained for a second day amid speculation central banks will take additional steps to spur growth and stem Europe’s debt crisis.

Italian two-year securities also advanced as the nation sold its maximum target of 2.5 billion euros ($3 billion) at an auction of zero-coupon debt. Germany’s 10-year bunds rose for the first time in four days even after an industry report predicted consumer confidence in the nation will increase to a five-month high in August.

“The possibility that a central-bank funded government bond-buying program could at least get discussed will make anyone who’s short peripheral markets very, very wary” and support Spanish and Italian bonds, said Peter Chatwell, a fixed- income strategist at Credit Agricole Corporate & Investment Bank in London. “It is unlikely that yields will come down in any significant fashion.” A short position is a bet that an asset will decline.

Spain’s two-year yield fell 23 basis points, or 0.23 percentage point, to 6.19 percent at 10:42 a.m. London time. The 4.75 percent note due in July 2014 rose 0.42, or 4.20 euros per 1,000-euro face amount, to 97.375. The yield dropped 47 basis points yesterday.

Italy’s two-year note yield declined 16 basis points to 4.79 percent.

Spanish and Italian bonds advanced yesterday amid speculation the European Central Bank will augment the firepower of the region’s bailout fund to help contain contagion from the debt crisis.

Home Sales

Sales of new U.S. homes unexpectedly dropped in June, the Commerce Department said yesterday, fuelling speculation the Federal Reserve will increase stimulus. Fed Chairman Ben S. Bernanke said last week policy makers are studying options for further easing that may be deployed if economic growth remains too weak to bring down unemployment.

Italy’s Treasury sold zero-coupon due in 2014 debt at a yield of 4.86 percent, the highest since November and up from 4.712 percent at the previous auction on June 26. Investors bid for 1.78 times the amount offered, versus 1.65 times last month.

Germany’s 10-year bund yield fell two basis points to 1.24 percent after dropping to match an all-time low of 1.127 percent on July 23. The two-year note yield was little changed at minus 0.064 percent, below zero for a 15th day.

A German consumer-sentiment index will increase for a second month to 5.9 from 5.8 in July, according to GfK SE. (GFK) Economists predicted an unchanged reading, according to a Bloomberg News survey.

German debt returned 4 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish securities lost 8.3 percent, while Italy’s bonds earned 4.8 percent.

 reporters on this story: Lucy Meakin in London 

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