“Italian bonds advanced, pushing two-year note yields to a record low, as data showing euro-area output contracted for a 15th month in April boosted speculation the European Central Bank will lower interest rates.
The yield on Italian 10-year government bonds fell below 4 percent for the first time in almost 2 1/2 years, while Spanish and Portuguese yields dropped to the least since 2010. Borrowing costs in France and Ireland declined to the lowest on record as a purchasing managers’ index showed services in Germany unexpectedly shrank with manufacturing. Bunds rose for a second day, with yields falling to the lowest since July, and Treasuries and U.K. gilts also advanced.
“The weaker tone in the headline and German PMIs this morning has fueled rate-cut speculation with regard to the next meeting,” Michael Leister, an interest-rate strategist at Commerzbank AG in London. “Bonds are rallying across the board, bunds as well as peripherals, which clearly shows to us that this hunt for yield is really intensifying and the market is expecting an ultra-low yield environment to stay in place for the foreseeable future.”
Italy’s two-year yield fell six basis points, or 0.06 percentage point, to 1.17 percent at 12:14 p.m. London time, after reaching 1.16 percent, the lowest level since Bloomberg began compiling the data in 1993. The 6 percent security due November 2014 rose 0.09, or 90 euro cents per 1,000-euro ($1,230) face amount, to 107.41.
The nation’s 10-year yield declined as much as eight basis points to 3.975 percent, the lowestsince Nov. 8, 2010.
