Italian Bonds Advance After Auction; French, Belgian Debt Slides

Italian bonds advanced, with 10-year yields dropping from a six-week high, after the nation met its target amount at a debt auction, signaling demand for the securities picked up following losses this month.

Yields on Italy’s five-year notes declined after the biggest increase in three weeks yesterday as the nation sold 5.75 billion euros ($7.5 billion) of securities due in 2018 and 2023. French bonds fell, sending 10-year rates to the highest in more than two months. Belgian debt also dropped, with the yield difference between 10-year bonds and equivalent-maturity benchmark German bunds widening to the most in four weeks.

“Italian bonds are rising as there is relief that the Italian auction is behind us,” said Luca Cazzulani, a senior fixed-income strategist at UniCredit SpA (UCG) in Milan. “There’s plenty of reasons for investors to be relieved after this auction, given the risk-off mode of the last few days. The sale went well with only thing to signal being a small rise in borrowing costs.”

Italy’s 10-year bond yield fell seven basis points, or 0.07 percentage point, to 4.12 percent at 4:57 p.m. London time, after climbing to 4.23 percent, the highest since April 19. The price of the 4.5 percent securities maturing in May 2023 rose 0.585, or 5.85 euros per 1,000-euro face amount, to 103.435.

The additional yield, or spread, investors demand to hold the securities instead of benchmark German bunds narrowed six basis points to 260 basis points.

Italy (GBTPGR10)’s five-year yield fell five basis points to 3.01 percent after climbing 13 basis points yesterday, the most since May 6.

Global Slump

Government bonds around the world have tumbled this month amid speculation the Federal Reserve may start to taper its bond-buying plan. Securities in the Bank of America Merrill Lynch Global Broad Market Index fell 1.5 percent in May, poised for the steepest loss since April 2004.

Italian government bonds handed investors a loss of 0.8 percent this month through yesterday, according to the indexes. German securities fell 1.6 percent, while U.S. Treasuries dropped 1.8 percent.

Italy auctioned 3 billion euros of bonds due in May 2023 at an average yield of 4.14 percent. It last sold the securities on April 29 at 3.94 percent, the lowest rate since October 2010.

Investors bid for 1.38 times the amount of securities allotted at the sale, compared with a so-called bid-to-cover ratio of 1.42 last month.

The Rome-based Treasury also sold 2.75 billion euros of five-year notes to yield 3.01 percent, up from a rate of 2.84 percent at a previous auction on April 29.

Spreads Widen

French 10-year debt fell, with yields gaining four basis points to 2.10 percent, the most since March 14. Rates on similar-maturity Belgian bonds rose five basis points to 2.27 percent, widening the yield spread with bunds seven basis points to 75 basis points.

Germany’s bonds climbed for the first time in four days as Japan’s Nikkei 225 Stock Average plunged 5.2 percent, entering a correction after dropping more than 10 percent from its recent peak, while Japanese government bonds rose.

Bund yields fell two basis points to 1.52 percent after climbing to 1.55 percent yesterday, the highest since Feb. 25.

“Bunds are higher, which is a reflection of firmer JGBs and a weak Nikkei today,” said Marc Ostwald, a strategist at Monument Securities Ltd. in London. “Month-end portfolio adjustments should naturally favor bonds over equities, given the bad performance we’ve had in bunds and Treasuries.”

The yield on Japanese bonds due in March 2023 slid 4.5 basis points to 0.89 percent at the close in Tokyo.

To contact the reporters on this story: Neal Armstrong in London at narmstrong8@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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