Italian Note Yield Drops to Record Low as Napolitano Re-Elected

A pedestrian walks beneath the arches of a shopping arcade in Turin, Italy. Photographer Alessia Pierdomenico/Bloomberg Close

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A pedestrian walks beneath the arches of a shopping arcade in Turin, Italy. Photographer Alessia Pierdomenico/Bloomberg

Italy’s government bonds advanced, pushing the two-year note yield to a record low, amid speculation re-elected president Giorgio Napolitano will take the lead in trying to end the nation’s political gridlock.

Italy’s 15-year yield dropped to the lowest in more than six years. Portuguese and Spanish bonds also climbed as Napolitano, 87, prepares to be sworn in for a second seven-year term. He could begin consultations on a new government as soon as tomorrow, eight weeks after inconclusive elections. German bunds rose even as a report showed consumer confidence in the euro region unexpectedly increased in April.

“We have a re-elected president in Italy and the chance for new players in the government formation,” said Rainer Guntermann, a rates strategist at Commerzbank AG in Frankfurt. “This should support Italian bonds and in the wake of that, probably Spain. Spread tightening can continue versus bunds.”

Italy’s two-year yield fell 10 basis points, or 0.1 percentage point, to 1.24 percent at 4:32 p.m. London time, after dropping to 1.208 percent, the lowest level since Bloomberg began compiling the data in 1993. The 6 percent security due November 2014 rose 0.145, or 1.45 euros per 1,000- euro ($1,303) face amount, to 107.315.

The nation’s 15-year yield dropped as much as 14 basis points to 4.23 percent, the lowest since December 2006.

The rate on the 10-year bond fell 15 basis points to 4.08 percent, after reaching 4.06 percent, the least since Jan. 25. That pushed the additional yield, or spread, investors demand to hold the Italian securities over similar-maturity bunds to as low as 280 basis points, the narrowest since Feb. 25.

Italian Election

Italian elections on Feb. 24-25 failed to select an outright winner, pushing 10-year yields to the highest since November. Democratic Party leader Pier Luigi Bersani, who won a partial victory, was unable to strike post-vote alliances and resigned after he was ultimately deserted by allies in the presidential ballot.

His exit increases the chances that Napolitano can convince the remnants of the Democrats to join a coalition with Silvio Berlusconi’s People of Liberty party to end the stalemate.

Volatility on Finnish bonds was the highest in euro-area markets today followed by those of Italy and Portugal, according to measures of 10-year debt, the yield spread between two- and 10-year securities, and credit-default swaps.

Portuguese Yields

The rate on 10-year Portuguese debt tumbled 19 basis points to 5.88 percent, while that on similar-maturity Spanish bonds slid 12 basis points to 4.50 percent, the lowest since November 2010. Germany’s 10-year bund yield fell two basis points to 1.23 percent. The rate fell to 1.20 percent on April 5, the least since July 24.

The spread between Spanish and Italian 10-year yields widened to 43 basis points, the most since Feb. 26 as a report today showed the Iberian nation’s budget deficit was the largest in the European Union last year.

The European Union’s statistics agency Eurostat today reported Spain’s deficit widened to 10.6 percent of gross domestic product last year, ahead of Greece’s 10 percent of GDP gap, swollen by the cost of bailing out its banking system. That compares with 9.4 percent in 2011.

The yield on Greek bonds in due February 2023 slipped two basis points to 11.48 percent.

An index of household confidence in the 17-nation euro bloc rose to minus 22.3 from minus 23.5 in March, the European Commission in Brussels said today. Economists had forecast a dip to minus 24, according to the median of 29 estimates in a Bloomberg News survey.

Italian bonds returned 2.8 percent this year through April 19, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish securities earned 5.6 percent and German debt gained 0.7 percent.

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

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

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