State bonds still top of eurozone performance chart

Government bonds are close to marking their second year as the eurozone’s top- performing debt, rewarding investors who trusted this country to successfully exit its bailout deal.

Running close behind, and potentially still with a chance to top the charts in terms of total annual returns at the end of the year, are Spanish bonds. Madrid has lured investors by implementing some painful reforms and getting back to growth.

Irish bonds have returned 11.7pc in the year to date while Spanish bonds have returned 11pc, according to data compiled on Markit’s iBoxx EUR benchmark index, one of the most tracked bond indexes by investors worldwide.

“In Ireland there’s been a lot of work done to address the issues they had, and they were able to exit their bailout easily,” said Gianluca Ziglio, executive director for fixed income research at Sunrise Brokers.

“But most of the rally has already happened. I don’t think any of the countries would be able to produce a similar level of performance next year simply because spreads are already very tight.”

Third in 2013 comes Italy, lagging mainly because internal political bickering throughout the year has been perceived as hindering its long-term growth prospects.

Italian bonds have returned 7.3pc so far this year, having outpaced all bonds in the index but Ireland’s in the fourth quarter — thanks largely to a record sale of inflation-linked bonds aimed at retail investors.

In contrast to the peripheral top three, the eurozone’s top-rated bonds have returned close to nothing or even caused losses as yields have bounced off record lows on expectations the US Federal Reserve would begin trimming its bond-buying monetary stimulus programme.

Investors in benchmark German bonds have lost 1.9pc. Portuguese and Greek bonds have performed even more strongly than Irish debt this year, but they are not part of the index because their credit ratings are too low. Source: Reuters.