Italian Bonds Rise as Debt Sale Meets Maximum Target; Bunds Fall

Italian government bonds rose, with 10-year yields falling from the highest level in two weeks, as the country met its maximum target as it sold 7 billion euros ($9.1 billion) of five- and 10-year debt.

Italy’s five-year notes gained for the first time in more than a week after borrowing costs fell at the auction. Spanish 10-year bonds fell as the country’s recession deepened in the third quarter and Prime Minister Mariano Rajoy said yesterday he would request external aid only when he judges it’s in the nation’s interests. German 10-year bunds declined as a report showed unemployment increased.

“Overall the auction went well,” said Gianluca Ziglio, a strategist at UBS AG in London. “It is a decent auction and so Italian yields are lower. Spain remains in limbo. It is evident that they are not going to ask for aid any time soon.”

Italy’s 10-year yield fell two basis points, or 0.02 percentage point, to 5 percent at 4:30 p.m. London time after rising to 5.02 percent yesterday, the highest since Oct. 12, The 5.5 percent bond due in November 2022 rose 0.14, or 1.40 euros per 1,000-euro face amount, to 104.40. The five-year yield dropped seven basis points to 3.82 percent.

Italy sold bonds maturing in November 2022 at an average yield of 4.92 percent, compared with 5.24 percent at the previous sale on Sept. 27. Five-year notes due in November 2017 were auctioned at an average yield of 3.80 percent, down from 4.06 percent on Oct. 11.

Spanish Economy

Spain’s gross domestic product declined 0.3 percent in the three months through September, compared with 0.4 percent the prior quarter, the Madrid-based National Statistics Institute said. That compared with the Bank of Spain’s estimate on Oct. 23 of a 0.4 percent contraction.

Spanish 10-year bonds dropped for a second day, with the yield rising one basis point to 5.67 percent.

The extra yield, or spread, that investors demand to hold Spanish 10-year bonds instead of their Italian counterparts widened three basis points to 67 basis points. The Spanish securities yielded less than their Italian counterparts as recently as March.

“Italy looks relatively safer than Spain,” Andrew Balls, London-based head of European portfolio management at Pacific Investment Management Co., which runs the world’s biggest bond fund, said on Bloomberg Television’s “The Pulse” with Francine Lacqua. “There’s a lot of political risk in Italy but much less of an adjustment risk. Spain has got to try and do a big fiscal adjustment.”

German Unemployment

The number of Germans out of work rose a seasonally adjusted 20,000 from September to 2.94 million, the Federal Labor Agency said in Nuremberg. Economists forecast an increase of 10,000, the median of 31 estimates in a Bloomberg survey showed. The adjusted jobless rate was 6.9 percent in October, matching the revised reading in September, which was the first gain in more than three years.

Germany’s 10-year bund yield rose two basis points to 1.48 percent after falling to 1.44 percent, the least since Oct. 4.

Volatility on Finland’s bonds was the highest among euro- area markets today, followed by those of the Netherlands and Austria, according to measures of 10-year debt, the spread between two-and 10-year securities, and credit default swaps.

The Finnish 10-year yield increased three basis points to 1.72 percent.

Dutch Bonds

Dutch 10-year bonds fell for the first time in three days after the Liberal and Labor parties reached an agreement yesterday to form a government and cut the budget by about 16 billion euros in the next four years.

The 10-year yield climbed two basis points to 1.74 percent. It has dropped 14 basis points since the Sept. 12 elections.

“This package will affect everyone,” caretaker Prime Minister Mark Rutte told journalists in the Hague yesterday as he announced the deal. “Economic growth is on a structurally lower level in the Netherlands and we can’t pass on the bill to future generations.”

German bonds returned 3.3 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish securities gained 2.6 percent, while Italy’s rose 16 percent.

To contact the reporters on this story: Emma Charlton in London at echarlton1@bloomberg.net; Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net;

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net

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