Spanish and Italian bonds rally amid speculation ECB will buy securities

Spanish and Italian government bonds rallied, paring a slump for the week, on speculation the ECB will buy the securities to help prevent the eurozone from disintegrating.

German, US and British yields fell to all-time lows earlier after Spanish economy minister Luis de Guindos said the future of the euro is at stake and a report showed US employers added the smallest number of workers in a year in May. .

“The markets are so jumpy that even the slightest rumour of policy action would ensure profit-taking on short Spanish government bond positions,” said John Davies, a strategist at WestLB AG in London, referring to bets that prices will decline.

“But if we were really getting strong speculation that the ECB was intending to step in I think we would be down 30 or 40 basis points.”

Spanish 10-year government bond yields fell five basis points, or 0.05%, to 6.51% yesterday.

An ECB spokesman declined to comment on the prospects of debt purchases.

The German two-year yield slid to -0.012%, the first time the rate on the securities has been negative, before recovering to 0.002%.

A yield below zero means investors will receive less in repayments on the German securities when held through to maturity than the amount they paid to buy them.

Danish and Swiss two-year rates were also negative.

— Bloomberg