Italian Bonds Fall as Yields Climb at Auction; Bunds Erase Gain

Italian government bonds fell, pushing 10-year yields to the highest in almost four months, as the nation’s borrowing costs increased when it sold 4.5 billion euros ($5.89 billion) of debt.

Portuguese and Irish bonds also declined even after European Central Bank President Mario Draghi said the region’s economic outlook still warranted an accommodative monetary policy. German bonds erased an earlier gain after a U.S. report showed consumer confidence increased more than economists forecast, damping demand for safer assets. Italy sold zero-coupon bonds due in 2015 as well as inflation-linked securities.

“The zero-coupon bond was priced at a very high yield but it was not surprising given the past few days’ selloff,” said Annalisa Piazza, an analyst at Newedge Group in London. “The market might have not liked it.”

Italy’s 10-year yield climbed four basis points, or 0.04 percentage point, to 4.87 percent as of 4:17 p.m. London time after rising to 4.90 percent, the highest level since Feb. 27. The 4.5 percent bond due in May 2023 dropped 0.315, or 3.15 euros per 1,000-euro face amount, to 97.525.

The Rome-based Treasury sold 3.5 billion euros of zero-coupon bonds at 2.403 percent, the highest since Sept. 25 and up from 1.113 percent at the previous auction of similar-maturity debt May 28. The Treasury also sold a total of 1 billion euros of index-linked securities due in 2018 and 2026.

Portugal’s 10-year yield climbed eight basis points to 6.89 percent and Ireland’s rose three basis points to 4.29 percent.

‘More Essential’

Draghi, speaking in Berlin, defended the ECB’s as-yet-unused Outright Monetary Transactions bond-purchase program, signaling its presence may help ward off volatility.

“I would say that OMT is even more essential now as we see potential changes in the monetary policy stance with associated uncertainty in other jurisdictions of the integrated global economy,” he said.

Current economic conditions don’t merit a change in the ECB’s monetary-policy stance, Draghi said.

The Netherlands sold 6.1 billion euros of 1.25 percent notes due in January 2019. The securities were priced to yield 1.392 percent, the Dutch State Treasury Agency said.

Germany’s 10-year (GBTPGR10) yield was little changed at 1.80 percent, after dropping as much as five basis points. The rate climbed to 1.85 percent yesterday, the highest level since April 2012.

Italian bonds returned 0.4 percent this year through yesterday, according to Bloomberg World Bond Indexes. Spanish bonds gained 3.5 percent, while German bunds handed investors a loss of 2.2 percent, the indexes show.

To contact the reporters on this story: David Goodman in London at dgoodman28@bloomberg.net; Neal Armstrong in London at narmstrong8@bloomberg.net

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

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