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 by the region’s officials in Brussels. Investors represented by the Institute of International Finance agreed to losses on Greek bonds that may reduce the nation’s debt stock by as much as 107 billion euros as part of the accord. Spain sold 2.5 billion euros of 84- and 182-day bills today. The European Financial Stability Facility will offer 182-day debt.
“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 Italian 10-year yield slid 12 basis points to 5.36 percent at 10 a.m. London time, the lowest since Sept. 9. The 5 percent bond due March 2022 rose 0.580, or 5.80 euros per 1,000 euro ($1,325) face amount, to 97.470. Two-year not yields fell 11 basis points to 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 bunds fell 12 basis points to 339 basis points. Spanish 10-year bond yields declined eight basis points to 5.07 percent, narrowing the spread with bunds to 309 basis points. That’s the lowest since Feb. 8.
Greek Aid
The benchmark 10-year bund yield was two basis points higher at 1.98 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.
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 might 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 Greek March 2012 note traded at 34.085 percent of face value, down from 42 percent on Feb. 16. Greece’s two-year note advanced, pushing the yield down 867 basis points to 187 percent. The price rose to 22 percent of face value.
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.
To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net; David Goodman in London at dgoodman28@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net.
