Euro bonds ignore growth concern on ECB before Greece sells debt

Lucy Meakin & David Goodman

Europe’s worsening growth prospects are losing significance for bond investors as bets the European Central Bank will begin asset-purchase stimulus measures boost demand for the region’s higher-yielding bonds.

The Italian yield premium over German bunds declined for the first time in three days even after Prime Minister Matteo Renzi said on Tuesday gross domestic product will expand less this year than previously forecast. Speculation the ECB will unveil a program on quantitative easing will support demand for Greek debt as the nation prepares to announce a 2 billion-euro ($2.76 billion) sale of five-year notes on Wednesday, according to ING Groep NV. Germany sold 3.5 billion euros of two-year securities.

“It seems everything is bulletproof even when you do get relatively bad news; people are prepared to look straight through it,” said John Wraith, a fixed-income strategist at Bank of America Corp. in London. “People are still hunting for yield and in the absence of any more material rise in safe-haven yields that means turning to bond markets that a more rational evaluation might lead you to be cautious about.”

Italian 10-year yields fell two basis points, or 0.02 percentage point, to 3.20 percent at 10:46 a.m. London time. The 4.5 percent security due March 2024 rose 0.195, or 1.95 euros per 1,000-euro face amount, to 111.19. The rate on equivalent- maturity German bunds rose two basis points to 1.57 percent.

The extra yield investors demand to hold Italy’s 10-year bonds over bunds narrowed to 161 basis points, about two basis points from the lowest since June 2011.

Greece will begin the sale of notes on Thursday, according to a person familiar with the arrangements, who asked...