Spanish two-year notes rose for a seventh day, the longest streak of gains in more than a year, on speculation banks bought the debt to use as collateral when the European Central Bank starts offering three-year loans tomorrow.
France’s 10-year government bonds fell for the first time in five days as the nation prepared to sell bills after Fitch Ratings lowered its credit outlook. Belgium’s two-year notes trimmed six days of gains after its rating was cut two levels to Aa3 by Moody’s Investors Service after markets closed on Dec. 16. When the ECB starts its longer-term refinancing operation tomorrow, banks can borrow unlimited funds in return for eligible collateral, including euro-region government bonds.
Spain’s two-year note yields fell 18 basis points, or 0.18 percentage points, to 3.28% late Monday morning. They have dropped 164 basis points in the past seven trading days, the longest run of declines since October 2010. The 2.5% security due in Oct. 2013 rose 0.325, or 3.25 euros per 1,000-euro ($1,302 U.S.) face amount, to 98.620. Two-year Italian note yields declined 25 basis points to 5.04%.
Spanish two-year notes rose for a seventh day, the longest streak of gains in more than a year, on speculation banks bought the debt to use as collateral when the European Central Bank starts offering three-year loans tomorrow.
The ECB is resisting pressure to increase its bond buying, saying governments need to find a lasting solution to the sovereign debt crisis. It has so far spent 207.5 billion euros on government bonds since its program started in May last year. It settled 635 million euros of purchases in the week through Dec. 9, the smallest amount since it resumed its market interventions in August.
The Frankfurt-based central bank has instead focused on helping the banking industry with measures, including tomorrow’s offer of unlimited three-year loans. It’s up to the banks to decide what to do with the money, European Central Bank President Mario Draghi told the Financial Times in an interview conducted on Dec. 14.
Fitch on Dec. 16 revised its outlook for the credit grades of Belgium, Spain, Slovenia, Italy, Ireland and Cyprus to negative and said France is more exposed to the crisis than other top-rated euro-region countries. France is scheduled to sell seven billion euros of Treasury bills today.
French 10-year bond yields rose nine basis points to 3.15%, while its two-year note yields climbed 10 basis points to 1.01%.
Belgian two-year note yields climbed 19 basis points to 2.78%, while its 10-year yields advanced 12 basis points to 4.42%.
Euro-area finance ministers will hold a conference call at 3:30 p.m. Brussels time to discuss 200 billion euros in additional funding through the International Monetary Fund and the mechanics of a so-called fiscal compact that was negotiated at a Dec. 9 European Union summit, according to two people familiar with the planning.
German two-year note yields were two basis points higher at 0.24%, after falling to 0.214% to match a record low set Dec. 16. Ten-year bond yields were five basis points higher at 1.90%. They have dropped about one percentage point this year as the euro-area sovereign debt crisis intensified, boosting investment in the region’s benchmark securities.
German bonds have handed investors a 2.8% gain so far this month, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies, boosting year-to-date returns to 9.5%. French bonds have returned 4.8 percent this year, the indexes show, while Spain’s have gained 5.4%.
