Portugal recovery attracts investors

Portugal’s government bonds advanced, with 10-year yields dropping below 5% for the first time since August 2010, as a recovery in the region’s most indebted economies attracted investors.

The nation’s February 2024 securities rose for an eighth day, improving the prospect it will regain full market access as the end of its €78bn rescue programme from the European Union and International Monetary Fund approaches. Ireland’s bonds rallied for a fifth day after Moody’s Investors Service raised its credit rating on the nation to investment grade last week. Spanish and Italian bonds declined.

“The ratings have held up and the country is now self- financing,” Steven Major, head of global fixed-income research at HSBC Holdings Plc in London, said on Bloomberg Television’s “The Pulse” in an interview with Anna Edwards. “There’s a hunt for yield and once the Irish bonds are too expensive, money then goes into Portugal. There’s this virtuous circle.”

Portugal’s 10-year yield fell three basis points, or 0.03 percentage point, to 5.08% at 3:05pm London time after dropping to 4.95%, the lowest level since June 2010. The 5.65% bond due in February 2024 rose 0.22, or 2.20 euro per 1,000-euro face amount, to 104.385.

Bond yields in the euro area’s peripheral nations are falling as their economies recover from the debt crisis that pushed borrowing costs up to records. Portugal’s 10-year yield has dropped from 18.29% in January 2012. Ireland’s bonds returned more than 100% since Moody’s stripped it of its investment-grade rating in July 2011.

Ireland’s 10-year yield was little changed at 3.24% after dropping to 3.21%, the lowest level since October 2005. Spain’s 10-year bonds snapped a five-day advance amid speculation the nation will sell a new security through banks.

The Spanish Treasury will probably issue €6 billion of a new 10-year benchmark this week, Joakim Tiberg, a strategist at UBS AG in London, wrote in an e-mailed note.

Spain’s 10-year yield rose four basis points to 3.73% after dropping to 3.64% yesterday, the lowest level since September 2006. Italy’s 10-year rate climbed three basis points to 3.82%.

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

Portugal’s bonds returned 13% in the past year through yesterday, the second best performer after Greece of 15 euro-area debt markets tracked by Bloomberg World Bond Indexes. Ireland’s securities earned 12%, while German bonds rose 0.2%.

— Bloomberg