“Italian and Spanish two-year notes rose as the European Central Bank lent financial institutions more three-year cash than economists predicted, fueling bets the extraordinary loans will be used to buy the nations’ debt.
The advance drove the Italian two-year yield to a 15-month low. The ECB will lend 800 financial institutions 529.5 billion euros ($711 billion) through its longer-term refinancing operation, more than the 470 billion-euro median of 28 estimates in a Bloomberg survey. German bunds were little changed as the country sold 3.26 billion euros of 2022 securities and a report showed unemployment stayed at the lowest in more than two decades last month.
“What we saw after the first LTRO is likely to develop further, with yields falling, and it will be no surprise to see further support for Italian and Spanish bonds,” said Patrick Jacq, a senior fixed-income strategist at BNP Paribas SA in Paris. “Demand was relatively strong and far stronger than the demand we saw in December.”
The Italian two-year note yield fell 24 basis points, or 0.24 percentage point, to 2.20 percent at 11:39 a.m. London time, the lowest rate since Nov. 8, 2010. The 2.25 percent note due November 2013 gained 0.38, or 3.80 euros per 1,000-euro face amount, to 100.095. That’s the first time the price of the securities has climbed to more than 100 cents on the euro.
Spain’s two-year notes advanced for a 10th consecutive day, with the yield dropping 11 basis points to 2.34 percent.
Unlimited Loans
Italy’s government note yields have tumbled about 4 percentage points since the ECB announced its plan to offer unlimited loans for three years on Dec. 8.
“An obvious use of LTRO funding is to purchase government bonds paying higher rates,” Fitch Ratings said in an e-mailed report yesterday. “Sovereign spreads showed a marked decline following the LTRO” in December, it said.
Germany’s 10-year bond yield was at 1.80 percent after fall to 1.78 percent yesterday, the lowest since Jan. 31…”
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