Italian Notes Rise Amid Bets Berlusconi Concern Overdone

Italy’s two-year notes advanced, pushing yields down the most in three weeks, amid easing investor concern that budget reforms will be derailed as former Prime Minister Silvio Berlusconi seeks a political comeback.

Italian 10-year yields rose above 4.50 percent for the first time this year. A report showed European services output in January shrank less than initially estimated. German 10-year bonds snapped a three-day advance as European stocks gained, sapping demand for the safest assets. Spanish notes rose, after falling for four days, as Prime Minister Mariano Rajoy battled to rebut corruption allegations.

Italian two-year yields declined 10 basis points, or 0.10 percentage point, to 1.63 percent at 10:28 a.m. London time, the steepest slide since Jan. 10. The 6 percent security due November 2014 rose 0.17 or 1.70 euros per 1,000 euro ($1,354) face amount, to 107.57.

“It is perhaps too soon to conclude that this is the long- awaited reality check by the market,” said Elwin de Groot, a market economist at Rabobank Nederland in Utrecht, the Netherlands. “Political factors such as we are seeing in Spain and Italy at the moment are always extremely difficult to gauge. This could weigh on Spanish and Italian bonds for some time but we should acknowledge the rally in markets since mid-2012.”

Yields on Spanish 10-year bonds were little changed at 5.44 percent while those on securities due in two years declined three basis points to 2.85 percent.

Services Industry

Germany’s 10-year yield rose three basis points to 1.64 percent after falling 10 basis points in the past three days.

An index based on a survey of purchasing managers in the euro-area services industry rose to 48.6 from 47.8 in December, London-based Markit Economics said in a report today. That’s above an initial estimate of 48.3 published on Jan. 24. A reading below 50 indicates contraction. The gauge has been below that mark for 12 months.

Austria sold 1.1 billion euros of bonds maturing in 2019 and 2022.

German government bonds have handed investors a loss of 1.4 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Austrian securities dropped 1.1 percent.

To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net David Goodman in London at dgoodman28@bloomberg.net

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

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