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Italian, Spanish and Portuguese bonds underperform ahead of ECB
* Analysts expect Draghi caution, but risks are to hawkish side
* Spain and France to sell government bonds via auctions
* Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr
LONDON, July 20 (Reuters) – Southern European government bonds underperformed better-rated peers ahead of a European Central Bank meeting at which policymakers are expected to stick to their plans regarding the eventual unwinding of their asset-buying programme.
Italian, Portuguese and Spanish government bonds are seen as the biggest beneficiaries of the central bank’s ultra-loose monetary policy stance of the past few years, and some worry that the market is not fully reflecting the increased risk these countries now face as the ECB moves towards tighter policy.
The gap between their borrowing costs and that of Germany – the bloc’s benchmark – has actually been at the tightest level in months in recent days.
“We have seen very little impact on peripheral spreads since Sintra but this could change very rapidly in a short period of time if the messaging is a bit too hawkish today,” said DZ Bank strategist Daniel Lenz.
He was referring to a recent speech by ECB chief Mario Draghi at Sintra, Portugal, which triggered speculation that the ECB would announce tapering of its bond-buying programme sooner rather than later – potentially as early as September.
“A new discussion on how Italy will cope with the high yield environment when tapering begins will start up, and this is something ECB needs to avoid by all means,” he said.
