Sunday 16 December 2018

Irish bonds rise on speculation ECB may buy debt

ECB President Jean-Claude Trichet. Photo: Bloomberg News
ECB President Jean-Claude Trichet. Photo: Bloomberg News

Irish, Greek and Portuguese bonds rose, narrowing the yield difference yield with benchmark German bunds, amid speculation the European Central Bank will purchase more high-deficit nations’ assets to stem the debt crisis.

Irish 10-year bonds headed for their biggest weekly advance since May 14, when the European Union and International Monetary Fund announced a backstop for ailing nations.

ECB President Jean-Claude Trichet said yesterday policy makers extended stimulus measures to stem Europe’s “acute” market tensions.

Growth in the region’s services and manufacturing industries accelerated more than initially estimated in November.

“We’ve seen quite a sharp tightening of spreads in the past two days on increased ECB buying,” said Vincent Chaigneau, head of rate strategy at Societe Generale in London. “We see more buying today as quite likely.”

The yield on the 10-year Irish bond fell for a fourth straight day, dropping 26 basis points to 8.5pc as of 10:13am in London.

The 5pc security maturing in October 2020 gained 1.39, or 13.9 euros per 1,000 face amount, to 77.23. The yield fell 85 basis points this week, narrowing the premium investors demand to hold the debt instead of bunds to 5.49pc from 6.46pc a week ago.

The yield on the German bund, Europe’s benchmark debt security, rose three basis points to 2.83. It reached 2.85pc yesterday, the highest since May 18.

Bonds from so-called peripheral nations rallied yesterday as traders said that the central bank increased purchases of their government bonds.

Trichet said yesterday the ECB will maintain its bond-buying program and continue to sterilise asset purchases. The central bank will offer banks unlimited loans through the first quarter, Trichet said.

Increase purchases

The ECB may increase purchases of government bonds to ensure the sovereign debt crisis abates, according to Dirk Schumacher, an economist at Goldman Sachs in Frankfurt.

“We remain convinced that the political will among policy makers, including the ECB, to prevent any systemic event is unquestionable,” he wrote in a research report dated yesterday.

“We could easily see the ECB stepping up its bond purchases aggressively if things do not start to normalise.”

Greek 10-year bonds rose, sending the yield down seven basis points to 11.78pc. Portuguese government bond yields dropped 15 basis points to 6.16pc, narrowing the spread with bunds to less than 3 percentage points, or 300 basis points, for the first time since August 24. Spanish yields dropped six basis point to 5.06pc and Italian yields slid eight basis points to 4.32pc.

A composite index based on a survey of euro-area purchasing managers in services and manufacturing rose to 55.5 last month from 53.8 in October, London-based Markit Economics said today.

It had initially reported a gain to 55.4. A reading above 50 indicates expansion. A gauge of services industries increased to 55.4 from 53.3.


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