Italian Bonds Advance After Borrowing Costs Slide at Bill Sale

Italian 10-year bonds rose, paring the extra yield investors demand to hold them instead of German bunds, as the government sold bills at the lowest rate in more than a year amid optimism the region’s debt crisis is easing.

Italian notes climbed after the Rome-based Treasury sold 8.5 billion euros ($11 billion) of 182-day bills at 1.119 percent, the lowest since September 2010, and down from 1.202 percent at the last auction of similar securities on Feb. 27. The euro area’s woes are “almost over” Prime Minister Mario Monti said in Tokyo today. Portuguese two-year debt advanced for the 10th straight day, the longest run of gains in three years.

“We had the Monti speech overnight with a positive slant,” said Peter Schaffrik, head of European interest-rate strategy at Royal Bank of Canada in London. The bill sale was “OK and we have another auction tomorrow which is expected to go OK as well so that might contribute” to spreads narrowing further, he said.

The Italian 10-year yield slid four basis points, or 0.04 percentage points, to 5.08 percent at 11:24 a.m. London time. The 5 percent note due March 2022 rose 0.310, or 3.10 euros per 1,000-euro face amount, to 99.875 percent of face value.

The yield spread over similar-maturity bunds, Europe’s benchmark government securities, narrowed three basis points to 3.20 percent. Italy’s two-year note yield fell two basis points to 2.60 percent. Yields on German bunds were little changed at 1.88 percent.

German bunds have lost 0.2 percent in the first quarter, their worst quarterly performance in a year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Portuguese bonds handed investors the biggest return of the 26 markets tracked by the indexes, followed by Italian government debt, gaining 13 percent and 11 percent respectively, the indexes show.

To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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