By Paul Dobson
Dec. 28 (Bloomberg) -- Italian 10-year bonds rose for the first time in five days on bets the European Central Bank?s provision of three-year loans last week is boosting demand for the nation?s debt.
Two-year notes climbed a third day as Italy?s borrowing costs dropped and demand rose at a sale of six-month bills. Spanish securities also rallied, and German and Dutch two-year yields fell to records. Overnight deposits with the ECB climbed to an all-time high after the central bank lent financial institutions 489 billion euros ($639 billion) for as much as three years in a Dec. 21 tender.
?There?s a switch thanks to the ECB three-year tender, which is helpful for the short end of the periphery curves,? said David Schnautz, a fixed-income strategist at Commerzbank AG in London, referring to nearer-maturity debt from nations including Italy and Spain. ?The next stop is tomorrow?s bond auction and today?s result is a good omen for that.?
Italy?s 10-year bond yield fell 25 basis points to 6.75 percent at 10:37 a.m. London time. The 5 percent securities maturing in March 2022 rose 1.595, or 15.95 euros per 1,000-euro face amount, to 87.995. Five-year note yields dropped 30 basis points to 6.04 percent.
The rate on Spanish 10-year debt fell 24 basis points to 5.09 percent, while two-year note yields dropped 35 basis points to 3.28 percent.
Italian Sale
The Rome-based Treasury sold 9 billion euros of 179-day bills at a rate of 3.251 percent, down from 6.504 percent at the last auction of similar-maturity securities. Demand was 1.7 times the amount on offer, compared with 1.47 times last month.
The nation also sold zero-coupon notes due in September 2013 at a yield of 4.85 percent, down from 7.81 percent at an auction on Nov. 25. It plans to sell bonds tomorrow.
German two-year note yields were little changed at 0.17 percent after earlier falling to a record-low 0.142 percent. Bloomberg began collecting the data in 1990. One-year rates were at minus 0.04 percent. The two-year Dutch yield fell to as low as 0.198 percent.
Euro-area banks parked 452 billion euros with the Frankfurt-based ECB yesterday, the most since the euro?s introduction in 1999 and up from the previous record of 412 billion euros a day earlier.
?There?s a flight to cash products? after the ECB tender, said Peter Chatwell, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. ?It will be interesting to see if any of this is put into Italy.?
German government bonds have rallied this year as Europe?s debt crisis threatened to spread to the region?s larger economies, stoking demand for the safest investments. Germany?s securities have returned 9.3 percent, the most since 2008, according to indexes compiled by the European Federation of Financial Analysts Societies and Bloomberg. Italian debt lost 6.1 percent, and Greek bonds dropped 63 percent, the indexes show.
--Editors: Mark McCord, Nicholas Reynolds
To contact the reporter on this story: Paul Dobson in London at pdobson2@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
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