Portugal’s government bonds rose, after 10-year yields jumped the most in 17 months yesterday, on speculation a political rift in the ruling coalition would be resolved at a meeting yesterday.
The nation’s benchmark yield dropped from the highest since November before Paulo Portas, the minister whose resignation this week threatened to bring down the government, was to meet Portuguese Prime Minister Pedro Passos Coelho to try to overcome differences on budget policy. German bunds declined before the European Central Bank announces its monthly policy decision. Spanish bonds were little changed before the nation sell as much as 4 billion euros (US$5.2 billion) of bonds due in three and five years.
“Part of the reason yields in Portugal are coming back down is that the market is realizing contagion effects to other peripheral countries are limited,” said Cagdas Aksu, a strategist at Barclays PLC in London. “Portugal is a very small debt market and liquidity isn’t great. It doesn’t take that much to push yields up and down.”
Portugal’s 10-year yield dropped 30 basis points, or 0.3 percentage point, to 7.16 percent at 8:54am London time after rising 75 basis points on Wednesday, the most since Jan. 30 last year. The 4.95 percent bond due in October 2023 gained 1.89, or 18.90 euros per 1,000-euro face amount, to 84.21. The yield climbed to 8.11 percent on Wednesday, the highest since Nov. 21.
Portas, leader of the coalition government’s smaller party, wants to ensure a “viable solution” to hold the administration together while extracting a “guarantee” that his party will have an influence on policy, Luis Queiro, a party official, said in Lisbon late on Wednesday. Pedro Mota Soares and Assuncao Cristas, ministers from Portas’s CDS group, will remain in office, he said.
The European Central Bank (ECB) will leave its main refinancing rate at a record- low 0.5 percent, according to all except one of 62 economists surveyed by Bloomberg News. ECB President Mario Draghi was scheduled to hold a press conference yesterday in Frankfurt to explain the decision.
“Draghi is likely to sound dovish,” said Piet Lammens, head of research at KBC Bank NV in Brussels. “He has no scope to do otherwise as Portugal has increased the risks so it’s not the time to change tack. There has been some improvement in the European economy, but it remains fragile. We think the market reaction will be cautious.”
German 10-year bund yields climbed one basis point to 1.67 percent after falling to 1.63 percent on Wednesday, the lowest level since June 20.
Spain last sold five-year debt on June 20 at an average yield of 3.592 percent, up from a rate of 3.001 percent at a previous auction on May 23. France is scheduled to as much as 8 billion euros of 10 and 15-year securities.
Portuguese bonds handed investors a loss of 1.5 percent this year through Wednesday, according to the Bloomberg World Bond Indexes. Spanish securities returned 5.3 percent and German bunds declined 1.3 percent.