Spainâ€™s government bonds rose, with 10-year yields dropping the most in seven months, amid speculation the European Central Bank will accelerate efforts to ease the regionâ€™s sovereign debt crisis.
Italyâ€™s securities also rallied after German Chancellor Angela Merkel and French President Francois Hollande pledged to do everything to keep the 17-nation currency bloc intact, echoing comments the day before from ECB President Mario Draghi. Germanyâ€™s bunds declined after Moodyâ€™s Investors Service cut the outlook on the nationâ€™s Aaa rating, citing concern the country will have to support weaker euro-region members. The ECB meets to review monetary policy on Aug. 2.
â€œA lot of it is down to Mr. Draghiâ€™s comments, which convinced the market that come next Thursday the ECB will be providing us with some supportâ€ for bonds, said Eric Wand, a fixed-income strategist at Lloyds Banking Group Plc in London. â€œThe language he used was pretty forceful. If he fails to deliver on that promise the market is going to make them pay and big time.â€
Spainâ€™s 10-year yield fell 52 basis points, or 0.52 percentage point, this week to 6.74 percent at 5 p.m. London time yesterday, the biggest weekly drop since the period ended Dec. 2. The 5.85 percent bond due in January 2012 gained 3.38, or 33.80 euros per 1,000-euro ($1,237) face amount, to 93.83.
The Italian 10-year bond yield declined 21 basis points this week to 5.96 percent after rising to 6.71 percent on July 25, the highest level since Jan. 16.