Greek bonds fall for third day, yield on three-year note up to 11.18 pct

The yield premium investors demand to hold Italian bonds instead of German bunds rose from the least since May 2010 as investors considered the scale and form of anticipated European Central Bank sovereign-debt purchases.

Italian and Spanish 10-year yields earlier touched record lows amid speculation ECB President Mario Draghi will announce a 550 billion-euro ($638 billion) government-bond purchase program on Jan. 22, as predicted by 93 percent of respondents in a Bloomberg News survey. Der Spiegel magazine reported that Draghi has briefed German Chancellor Angela Merkel on plans under which national central banks would buy bonds sold by their own country to avoid a transfer of risk between member states.

“Risks are to the upside for peripherals,” said Michael Leister, a senior rates strategist in Frankfurt at Commerzbank AG, the top-ranked primary dealer for German bonds. “The ECB meeting is likely going to feature some sort of risk isolation that over the longer term could send some sort of negative signal. Against this backdrop, we would stay a bit cautious. For bunds we do not see any material downside risk.”

Germany’s 10-year yields fell two basis points, or 0.02 percentage point, to 0.44 percent at 12:57 p.m. London time. The rate dropped to a record 0.423 percent on Jan. 14. The 0.5 percent bond due in February 2025 rose 0.155, or 1.55 euros per 1,000-euro face amount, to 100.61. The nation’s two-year yield dropped to minus 0.176 percent and that on five-year notes reached minus 0.06 percent, both records.

Negative Yield

A negative yield means investors buying the securities will get less back when the debt matures than what they paid.

Italy’s 10-year yield declined one basis point to 1.65 percent and fell to 1.619 percent, the lowest level since Bloomberg began collecting the data in 1993. The additional rate, or spread, investors demand to hold the securities over equivalent-maturity German bunds widened by one basis point to 121 basis points after earlier shrinking to 115 basis points, the narrowest since May 2010.

Spain’s 10-year yield fell less than one basis point to 1.49 percent and reached 1.47 percent, the lowest on record.

Yields across the euro area have tumbled to new lows since Draghi pledged in July 2012 to do whatever it takes to save the euro. After introducing a negative deposit rate and purchases of asset-backed securities and covered bonds, investors are now anticipating the introduction of government-debt buying as the latest measure to help spur inflation. The average rate on euro- area government debt dropped to 0.7141 percent on Jan. 16, the least since at least 1995, according to Bank of America Merrill Lynch indexes.

Greece’s three-year notes fell for a third day as the nation enters the final week of campaigning for national elections. The yield rose 11 basis points to 11.18 percent.

Greek government bonds are the best-performing euro-area debt market this year, having returned 5.1 percent, according to Bloomberg World Bond Indexes. German securities earned 1.1 percent, Italy’s 1 percent and Spain’s 0.6 percent.