Italian bonds rose, with 10-year yields falling from the highest level in three weeks, as concern eased that Prime Minister Mario Monti’s resignation would derail the nation’s attempts to cut its debt load.
Italy’s securities snapped their slide from yesterday before the nation sells as much as 6.5 billion euros ($8.44 billion) of bills tomorrow and debt due in 2015 and 2026 the following day. Spanish bonds advanced after an auction of bills raised more than the maximum target set for the sale. Greece’s yields fell to the lowest since the nation’s debt was restructured in March as its offer to buy back sovereign debt expired. German bunds fell after investor confidence improved.
“The initial fear was about uncertainty as the timing of Monti’s resignation was unexpected, but we have seen some calm come back,” said Robin Marshall, director of fixed-income at Smith & Williamson Investment Management in London, which oversees the equivalent of $19 billion. The “auction should be fine but I think the fears will come back again as we go towards the election campaign, probably in” the first quarter, he told Maryam Nemazee on Bloomberg Television’s “The Pulse.”
Italy’s 10-year yield dropped 10 basis points, or 0.1 percentage point, to 4.72 percent at 5 p.m. London time after climbing to 4.90 percent yesterday, the highest since Nov. 21. The 5.5 percent bond due in November 2022 rose 0.78, or 7.80 euros per 1,000-euro face amount, to 106.55.
Two-year yields fell 10 basis points to 2.23 percent.
The nation’s bonds slid yesterday as former premier Silvio Berlusconi entered the race to become next prime minister, reinvigorating the campaign against Monti’s austerity measures.
Monti will hand in his official resignation after attempting to muster parliamentary support for the 2013 budget law. The premier said in Oslo he expects to serve as a caretaker until a new government is installed. The election may take place on Feb. 17 or Feb. 24, Interior Minister Anna Maria Cancellieri said yesterday.
“We are not necessarily panicking about the political situation in Italy,” said Silvio Peruzzo, an economist at Nomura International in London. “The most likely outcome after the election is that the politics remain broadly unchanged. The market was probably looking at starting to price this risk in January, so it’s just brought it forward.”
Spanish bonds rallied as the nation sold a combined 3.89 billion euros of bills, above the upper target of 3.5 billion euros. It auctioned 12-month securities at an average yield of 2.556 percent, versus 2.797 percent on Nov. 20, and 18-month debt at 2.778 percent, down from 3.034 percent.
Greece’s 10-year yield fell 60 basis points to 13.21 percent as state-run NET TV reported that banks offered additional bonds into the nation’s buyback to bring the operation up to its goal of 30 billion euros.
Greece is using a 10 billion-euro loan from Europe’s bailout fund to repurchase debt it issued earlier this year at around one third of face value, seeking to unlock bailout funds that have been frozen since June. The price of the 10-year security rose to 43.73 cents on the euro today.
Germany’s 10-year bonds dropped for a second day, with the yield climbing one basis point to 1.32 percent.
The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations rose to 6.9 from minus 15.7 in November. Economists predicted a gain to minus 11.5, according to a Bloomberg News survey.
Volatility on Irish government bonds was the highest in the euro area today, followed by those of Greece and Spain, according to measures of 10-year or equivalent-maturity debt, the spread between two- and 10-year securities, and credit default swaps.
Italian bonds returned 18 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish debt gained 4.3 percent and Germany’s rose 4.2 percent.
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