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Irish and Portuguese bond yields rise

Wednesday, May 28 16:18:08

Portuguese government bonds advanced for a fifth day amid speculation European Central Bank policy makers are preparing to introduce further stimulus measures at a meeting next week, boosting demand for fixed-income assets.

Irish securities also rose. German two-year yields fell to the lowest in almost a year after ECB President Mario Draghi said in Portugal yesterday that policy makers need to be "particularly watchful" of low inflation. The Netherlands sold 2 billion euros of debt due in January 2019 today, while Italy auctioned 3 billion euros of zero-coupon notes and 1 billion euros of inflation-linked securities.

"We are moving towards the ECB meeting with it very much expected that we will see an easing package introduced," said Jan von Gerich, a fixed-income strategist at Nordea Bank AB in Helsinki. "The trend continues to be for lower yields."

Portugal's 10-year yield fell three basis points, or 0.03pcage point, to 3.67pc at 4:30 p.m. London time after declining to 3.63pc, the lowest since May 15. The 5.65pc bond due February 2024 rose 0.26, or 2.60 euros per 1,000-euro face amount, to 115.91.

Yields on Ireland's 10-year bond slid two basis points to 2.68pc after declining to 2.66pc, the least since May 19. The rate on similar-maturity Italian debt rose two basis points to 3pc, while that on Spanish 10-year bonds was little changed at 2.90pc.

ECB officials are scheduled to meet on June 5 to set monetary policy after Draghi said earlier this month that the Governing Council was "comfortable" taking measures to boost inflation in the euro area. Inflation in the region has been less than half the ECB's goal of just under 2pc since October.

"What we need to be particularly watchful for at the moment is, in my view, the potential for a negative spiral to take hold between low inflation, falling inflation expectations and credit, in particular in stressed countries," Draghi said in a speech at the ECB Forum in Sintra, Portugal yesterday. "We are not resigned to allowing inflation to remain too low for too long."

Draghi is scheduled to take part in a discussion at the forum today.

"Overall, this speech is consistent with the ECB cutting rates in June and taking some targeted measures to support bank lending," Greg Fuzesi, an economist at JPMorgan Chase and Co. in London, wrote in an e-mailed note today. "The speech is also consistent with the door to QE being left open. But, it is less clear whether these comments signal a very big policy shift."

The Netherlands allotted the five-year securities at an average yield of 0.559pc, the lowest since Bloomberg began compiling the auction data in 2003.

Germany's two-year rate was little changed at 0.05pc after falling to 0.045pc, the lowest since May 31, 2013. The nation's five-year yield dropped as much as three basis points to 0.423pc, the least since May 23, 2013. The 10- year yield fell three basis points to 1.39pc.

Portugal's government securities returned 14pc this year through yesterday, according to Bloomberg World Bond Indexes. Ireland's gained 6.3pc and Germany's earned 3.9pc. (Bloomberg)