Euro-area bonds surge


‘Aggressive Easing’

“The ECB has adopted quiet an aggressive easing stance, not just utilizing a range of liquidity enhancing measures but also hinting at QE in coming month,” said Nick Stamenkovic, a fixed-income strategist at broker RIA Capital Markets in Edinburgh. “This is good news for peripherals but the trough in 10-year bund yields may have been reached.”

The implied yield on the Euribor futures contract expiring in December was 0.185% today, after reaching 0.175% yesterday, the least on record, according to closing- price data. Three-month Euribor, the rate banks say they pay for three-month loans in euros, was at 0.292%, the lowest since March 6.

The deposit rate was cut to minus 0.10%, a move which is “quite powerful” for the fixed-income market, according to Michael Krautzberger, the London-based head of euro fixed income at the world’s biggest money manager BlackRock Inc. Krautzberger, who helps oversee $4.3 trillion of assets, spoke in an interview on Bloomberg Television before the decision.

Yield Record

The average yield to maturity on euro-area government bonds fell to 1.4271% on May 28, the least on record, and was at 1.4919% yesterday, according to the Bank of America Merrill Lynch Euro Government Index.

Spain sold €4.5 billion of notes due in April 2017 and April 2019 at record-low yield today. It allotted 2.4 billion euros of the five-year securities at an average yield of 1.52%, down from 1.648% at a previous auction on May 22. The Madrid-based Treasury sold 2.1 billion euros of the three-year notes at 0.968%, also the least on record.

The rate on the 2.75% note due in April 2019 declined nine basis points to 1.47% after sliding to 1.442%, the lowest since Bloomberg began compiling the data in 1993. Spanish two-year yields slipped 11 basis points to 0.6%.

The yield spread between Spanish 10-year bonds and similar-maturity German securities narrowed nine basis points to 136 basis points, and reached 133 basis points, the least since July 2010.

Volatility on Italian bonds was the highest in euro-area markets, followed by those of Ireland and Germany, according to measures of 10-year debt, the yield spread between two- and 10- year securities and credit-default swaps.

Ireland’s 10-year yield fell below that of similar-maturity Treasury notes for the first time since November 2007, based on closing prices. The Irish 10-year yield dropped eight basis points to 2.57%. Benchmark Treasury yields were little changed at 2.60%.

Italy’s government securities returned 7.2% this year through yesterday, according to Bloomberg World Bond Indexes. France’s earned 4.5%, Germany’s 3.8% and Spain’s gained 8.2%.

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