German Bunds Fall Third Day as Sentiment Rises; Italy Bonds Gain

Germany’s 10-year bonds fell for a third day after an industry report showed business confidence in the nation improved in December, damping demand for the region’s safest assets.

Benchmark bund yields climbed to the highest level in three weeks as European stocks joined a rally in shares around the world. Greek bonds gained, with 10-year yields falling to the lowest since the nation’s debt was restructured in March, after Standard & Poor’s raised the country’s credit rating yesterday. Italian, Spanish and Portuguese securities also advanced as investors sought out higher-yielding investments.

“The latest print from the Ifo was a bit better than expected and indicates there might be a stabilization,” said Morten Hassing Povlsen, a senior rates analyst at Nordea Bank AB in Copenhagen. “The market has taken the Ifo data with relief, because it isn’t dropping more. Bund yields are rising toward the late November highs.”

The German 10-year yield rose two basis points, or 0.02 percentage point, to 1.43 percent at 4:53 p.m. London time after climbing to 1.46 percent, the highest level since Nov. 27. The 1.5 percent bond due in September 2022 dropped 0.17, or 1.70 euros per 1,000-euro ($1,326) face amount, to 100.635.

Sentiment Improves

The Ifo institute’s business climate index, based on a survey of 7,000 executives, climbed to 102.4 from 101.4 in November. That’s the second straight increase after sentiment dropped to a 2 1/2-year low in October. Economists surveyed by Bloomberg News predicted a gain to 102.

The Stoxx Euro 600 Index of shares gained 0.4 percent and the DAX Index of German shares increased to the highest in nearly five years.

Greek bonds advanced for a third day after S&P raised the nation’s rating to B- from selective default, citing the “strong determination” of euro-area governments to keep the nation in the currency bloc.

European officials last week approved the payout of 49.1 billion euros of loans through March from Greece’s bailout programs with the European Union and International Monetary Fund after receiving the results of the Greek bond buyback program.

Stable Outlook

“Greece finally stepped towards the light yesterday as ratings agency S&P raised its credit rating,” Lee McDarby, head of dealing on the corporate and institutional treasury desk at Investec Bank Plc in London, wrote in a note to clients. “The peripheral euro state was also given the stamp of having a stable outlook driven by the strong determination of the collective of euro-zone governments to keep the nation in the shared currency.”

The yield on Greece’s 10-year bond dropped 109 basis points to 11.73 percent, with the price climbing 3.90 to 48.99 percent of face value. The rate plunged as much as 148 basis points to 11.33 percent.

Volatility on Belgian debt was the highest among euro-area nations tracked by Bloomberg, followed by that of the Greece and Ireland, according to measures of 10-year bonds, two- and 10- year yield spreads and credit-default swaps.

Italian 10-year bond yields declined six basis points to 4.39 percent after falling to 4.35 percent, the lowest level since December 2010. Spain’s 10-year rate fell four basis points to 5.26 percent.

The yield on Portugal’s 10-year security dropped below 7 percent for the first time since Feb. 4, 2011, sliding as much as 10 basis points to 6.97 percent.

“A confidence rebound is enough to return the economy to trend growth rates,” Christian Schulz, an economist at Berenberg Bank in London wrote in a note to clients. “As Germany starts growing again, chances for the euro-zone periphery countries to export their way out of trouble also improve markedly.”

German bunds returned 3.8 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Italian bonds gained 21 percent and Portugal’s rose 57 percent.

To contact the reporters on this story: Neal Armstrong in London at narmstrong8@bloomberg.net; Emma Charlton in London at echarlton1@bloomberg.net

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

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