European bonds gain as investors digest ECB's avalanche
Euro-area government bonds gained after the dust settled on the European Central Bank's latest avalanche of stimulus measures.
Italian and Spanish securities led the advance, outperforming their higher-rated peers. The yield premium Italy's 10-year bonds offer over benchmark German debt narrowed to the least since the end of January. The region's bonds fell Thursday after ECB President Mario Draghi said he didn't presently see the need for more interestrate cuts.
At the meeting in Frankfurt, the central bank cut interest rates, expanded quantitative easing and introduced new longterm loans to banks. The ECB also lowered its inflation forecasts.
"The ECB overdelivered, as we thought they would, albeit in a more complex configuration than we looked for," Peter Chatwell, head of rates strategy at Mizuho International Plc in London, wrote in a note to clients. "The negative market reaction appears more linked to rate cuts being priced out. The market will get over this and the curve will flatten on a structural basis." Italy's 10-year bond yield dropped 11 basis points, or 0.11 percentage point, to 1.35 percent as of 8:54 a.m. London time, after climbing five basis points the previous day. The 2 percent security due in December 2025 rose 0.99, or 9.90 euros per 1,000-euro ($1,111) face amount, to 105.905.
Germany's 10-year bund yield fell five basis points to 0.26 percent, after climbing to 0.33 percent Thursday, the highest since Feb. 2. That narrowed the yield difference, or spread, between Italian and German 10year debt to 110 basis points, the lowest since Jan. 29, according to closing-price data compiled by Bloomberg.
The yield on similar-maturity Spanish bonds declined nine basis points to 1.51 percent Friday, having increased two basis points a day earlier.