Bonds Irish Portuguese peers as shopping ECB rates

European Central Bank purchases bonds secured Ireland and Portugal beat their fellow euro region this month, even as Deutsche Bank AG plans to Portugal will be the next country forced to seek help.

Ireland bonds gave investors a return of 6.9 percent since late November, cut losses this year to 10.3 percent. Portuguese debt advanced 3.7 percent, compared with a gain of 1 percent for Spanish stocks and 1.04 percent for Italian bonds. Investors lost money in AAA debt rating German and French, according to data compiled by us and the European Federation of Financial Analysts Societies.

"The excess return of Irish and Portuguese bonds was probably more or less down to buy BCE reported aggressive," said Mohit Kumar, fixed income strategist at Deutsche Bank AG in London. "I see no improvement in spreads as a turning point. The bigger picture of the debt crisis, especially for Portugal, has not changed."

Investors are demanding yields less additional debt to keep the Irish and Portuguese German bunds and the premiums have been reduced more than in Italy or Spain. Irish production of 10 years was extended to the equivalent German bond maturity fell to 512 basis points from 616 earlier this month, while the Spanish expansion was reduced to only 2 basis points to 249.

More Buying bonds

The ECB has accelerated purchases of bonds from Ireland, Portugal and Greece to stop the contagion from spreading, according to traders familiar with the operation who declined to be identified because the transactions are confidential. The central bank bought at least € 2,667,000,000 ($ 3.6 billion) of bonds last week, up 36 percent from the previous week, according to central bank data released yesterday.

Europe sovereign debt crisis erupted last year after the newly elected socialist government of Greece said that the budget deficit was twice as high as the previous administration had revealed. The sell-off of so-called peripheral euro bonds accelerated in October, after German Chancellor Angela Merkel, asked bondholders to share losses taxpayers.

Yield spreads can expand again as spending cuts affect growth, increasing the risk that some countries may lose their fiscal targets, according to Marcel Bross, a fixed income strategist at Frankfurt-based Commerzbank AG. The Portuguese economy will contract next year and Spain will grow slightly, according to analysts surveyed by us.

Refinancing needs

high refinancing needs of Portugal and Spain in the second trimester can result in increased yields, "said Bross. Spain has nearly 45 million euros of bonds next year, because, with the first payment of € 15,500,000,000 scheduled for April. Portugal may be necessary to increase by at least 9.4 million euros in the first half of 2011.

"With respect to the larger picture spreads, we do not believe we're out of the woods yet," said Bross. "We look for other leg crisis since the end of the first quarter and second quarter early."

Bank of England Deputy Governor Charles Bean said the European Union and the International Monetary Fund may have to help nations in the euro area.

"Support for Greece and Ireland the IMF and the rest of the European Union has given these countries an respite to carry out the necessary adjustments," Bean said in a speech in London yesterday. "The financial support from other countries may or may not be necessary. Only time will tell."

Any deterioration may prompt the ECB to increase purchases of bonds unless policy makers agree on the longer-term solutions, "said Peter Chatwell, fixed income strategist at Credit Agricole Corporate & Investment Bank in London.

"Extremely illiquid"

"The purchase of bonds by the ECB has had a strong impact on the spreads for now because it is carried out in a very illiquid market," said Chatwell. "The market will see what the central bank do when liquidity returns to normal in the new year. We need clear and credible long-term solution to turn sentiment around."

Spanish and Italian bonds have weakened amid signs of division among European governments on how to contain the crisis in the region of the debt. Union leaders attending a summit on December 16 and December 17, with Italy, Belgium and Luxembourg for the joint sale of bonds in the euro area, while Germany and France oppose the idea.

the survival of the euro is "not negotiable", that require monitoring of the budget and closer economic cooperation to overcome the "structural weaknesses" in the euro region, Merkel and French President Nicolas Sarkozy said on 10 December. Joint bond was discarded and rejected any increase in the size of a rescue fund set up in May.