Euro­pean bonds gain as in­vestors di­gest ECB's avalanche

The Pak Banker - - MARKETS/SPORTS -

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.

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