LONDON: Long-dated Italian bonds were among the euro zone's worst performers in 2011 as the sovereign debt crisis threatened to overwhelm the region's third largest economy.
The Markit iBoxx euro-denominated indices of total returns on government bonds show Italian debt with a maturity of more than 10 years posting a total year-to-date return of minus 11 percent, although bonds with a maturity of up to three years eked out a small gain of almost 1 percent.
A bond's total return is made up of the change in its price plus interest payments, assuming they are reinvested. Italian bond prices have fallen sharply since early July, with the 10-year benchmark trading at just 86 percent of face value.
Demand for liquid safe-haven assets due to the crisis pushed total returns on longer-dated German bonds (10 years plus) to 18 percent, while German bonds across the curve returned 9 percent overall.
Non-euro zone debt also benefited from the flight to quality, with US Treasuries posting returns similar to Bunds in their local currency. However, UK gilts were the clear out-performers with total year-to-date returns of 16 percent bolstered by the Bank of England's quantitative easing programme and the government's perceived fiscal prudence.
Among other euro zone peripheral debt, Spanish bonds returned 7 percent despite huge volatility throughout the year, while Irish paper was up 12 percent, benefiting from the view that Ireland has made greater strides than other bailed-out euro zone economies in tackling its debt problems.
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