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By Bloomberg

The rally in lower-rated euro-area government bonds has pushed yields down to levels that look “absurd,” according to KBC Bank NV. That’s not enough for investors to abandon the securities as European Central Bank purchases enter their second week.

Italy and Spain led an advance in longer-maturity debt before the ECB provides details of its purchases Monday. Executive Board member Benoit Coeure said last week that the average maturity of central-bank purchases has been nine years, and people familiar with the arrangements said on Monday that securities of KfW, Germany’s development bank, were among those being bought. Greece’s bonds fell as the nation repaid a loan from the International Monetary Fund.

“Yields have reached absurd levels, but as long as the ECB continues to buy, it will be a cap on the upward potential of yields,” said Mathias Van Der Jeugt, a fixed-income strategist at KBC Bank in Brussels. The average maturity so far implies “they are aggressively buying at the very long end of the curve,” where bonds “are often slightly more illiquid and more sensitive to what the ECB is doing,” he said.

Italy’s 30-year yield dropped six basis points, or 0.06 percentage point, to 1.90 percent at 8:18 a.m. New York time, pushing the premium investors get for holding the securities instead of two-year notes to 170 basis points. That’s approaching the smallest spread since May 2012 and is down from about 350 basis points a year ago.

Bond Rises

The price of Italy’s 4.75 percent securities maturing September 2044 increased 1.760, or 17.60 euros per 1,000-euro ($1,503) face amount, to 164.42 percent of face value.

The ECB and member central banks started buying 60 billion euros of public and private debt a month on March 9 to stimulate price growth. With shorter-dated yields near zero and negative in some countries, investors sought out longer-term securities for their higher rates.

Germany’s 30-year yields last week had the steepest decline since June 2012 and fell one basis point to 0.71 percent on Monday. The nation’s 10-year rate increased three basis points to 0.29 percent, narrowing the yield difference between the two securities to 42 basis points. The spread touched a four-year low of 41 basis points last week.

Bond Returns

Euro-area government securities returned an average 4.4 percent this year through Friday, according to Bloomberg World Bond Indexes. Italy’s gained 6.3 percent and Spain’s earned 4.3 percent. Greece was the only sovereign market in the region to hand investors a loss, dropping 4.5 percent, the indexes show.

Greece’s 10-year bond yield climbed five basis points to 10.82 percent Monday, up about 100 basis points from the end of 2014.

Greece made the payment to the IMF as scheduled, government spokesman Gabriel Sakellaridis said by phone. The country was due to pay back about 584 million euros.