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Italy Yields Drop Most in 2 Months as U.S. Payrolls Boost Demand

Italy’s government bonds rose, pushing 10-year yields down the most in more than two months, as data showing U.S. companies added more jobs than economists forecast in May boosted demand for higher-yielding assets.

Spanish securities also gained as the U.S. Labor Department said payrolls rose 175,000 last month after adding a revised 149,000 in April. German, Belgian, Dutch and Austrian bonds fell as demand for safer assets waned. Euro-area government bonds slid yesterday, pushing Spanish and Italian 10-year yields up the most in six weeks, after European Central Bank President Mario Draghi said the economy will return to growth by year-end, reducing the need for additional stimulus.

“There is a relief rally in Italy and Spain,” said Alessandro Giansanti, a senior rates strategist at ING Groep NV in Amsterdam. “The market overreacted to the ECB meeting. Today’s payroll data shows an improvement in job market which points to better economic conditions in U.S. Hence, the data is supportive for risky assets.”

Italian 10-year yields fell 18 basis points, or 0.18 percentage point, to 4.19 percent at 4:51 p.m. London time, the biggest decline since April 5. The 4.5 percent security due in May 2023 climbed 1.4, or 14 euros per 1,000-euro ($1,322) face amount, to 102.84. Yields rose 23 basis points yesterday, the most since Feb. 26.

The rate on similar-maturity Spanish bonds fell 15 basis points to 4.54 percent, while Germany’s 10-year bund yield rose three basis points to 1.55 percent after earlier sliding to as low as 1.48 percent, the least since May 31.

‘Still Problems’

Loomis Sayles & Co. sold all its Spanish bonds while retaining some Italian securities, Boston-based money manager Kenneth Buntrock said today.

“We’ve been opportunistic about buying Italian and Spanish bonds,” Buntrock said at a media briefing in London. “There are still problems in the region. We are concerned about growth.”

Belgium’s 10-year yield climbed four basis points to 2.34 percent, while the rate on similar-maturity Austrian debt increased three basis points to 1.95 percent. Dutch 10-year yields added two basis points to 1.89 percent.

The ECB cut its main interest rate by a quarter of a percentage point at its May meeting, when policy makers also considered taking the unprecedented step of charging banks to park funds with it overnight as a means of stoking lending to boost the region’s economy.

Draghi yesterday said the ECB had kept additional stimulus measures, including negative deposit rates, “on the shelf.” He was speaking after policy makers left the refinancing rate at a record-low 0.5 percent.

Portuguese 10-year bonds declined, pushing the yield on the securities up seven basis points to 6.14 percent. It earlier climbed 24 basis points to 6.31 percent, the highest since April 15.

Italian bonds handed investors a return of 2.7 percent this year through yesterday, according to the Bloomberg Italy Sovereign Bond Index. (BITA) Spanish securities gained 5.3 percent, while German bonds lost 0.8 percent, separate indexes show.

To contact the reporters on this story: Anchalee Worrachate in London at aworrachate@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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