Italian Bonds Rise for First Time in Six Days After Debt Auction

Italy’s 10-year government bonds rose for the first time in six days as the country’s borrowing costs declined at a debt sale, the last auction of conventional securities for four weeks.

Italy’s benchmark yields dropped from the highest in a week as the nation matched the maximum target of 6.75 billion ($8.95 billion) euros at its offering of June 2018 and March 2024 debt. Spanish bonds also rose. German bunds were little changed as a report showed euro-area economic confidence improved this month, weakening the case for more central-bank stimulus. The Bloomberg Eurozone Sovereign Bond Index rose 0.7 percent in July through yesterday, after losing the most in 18 months in June.

“What we’ve seen over the past couple of weeks is basically that underlying market sentiment continues to be quite robust,” said Elwin de Groot, senior market economist at Rabobank Nederland in Utrecht, the Netherlands. “The Italian and Spanish bonds are benefiting from that.”

Italy’s 10-year yield fell five basis points, or 0.05 percentage point, to 4.40 percent at 4:58 p.m. London time after climbing 14 basis points in the past five days. The 4.5 percent bond due in May 2023 rose 0.41, or 4.10 euros per 1,000-euro face amount, to 101.125.

Italy sold 3.75 billion euros of a new 10-year bond at 4.46 percent, down from 4.55 percent when it auctioned similar-maturity debt on June 27. The Rome-based Treasury allotted the 2018 bonds at 3.22 percent, down from 3.47 percent. Italy is due to pay about 44 billion euros of coupons and redemptions next month, according to data compiled by Bloomberg.

Berlusconi’s Allies

Demand for Italy’s bonds held up at the auction before a verdict from the nation’s highest court in former premier Silvio Berlusconi’s appeal of a tax-fraud case.

While Berlusconi has repeatedly said he won’t bring down the government, some of his allies have threatened Prime Minister Enrico Letta’s administration in case of a final conviction.

Italian bonds returned 1 percent this month through yesterday, after a 1.9 percent loss in June, according to Bloomberg World Bond Indexes. The Eurozone Bond Index declined 1.6 percent last month.

Spain’s 10-year yield fell two basis points to 4.66 percent after the rate increased six basis points yesterday.

Germany’s 10-year yield was at 1.67 percent after climbing to 1.69 percent on July 25, the highest level since July 9.

Consumer Sentiment

An index of executive and consumer sentiment rose to 92.5 from 91.3 in June, the European Commission in Brussels said today. Unemployment (UMRTEMU) in the region stayed at a record high in June, according to the median of 36 forecasts in a Bloomberg News survey before tomorrow’s release.

Spain and Italy’s borrowing costs will continue to converge with Germany’s as the European Central Bank keeps interest rates low, according to Paris-based Carmignac Gestion SA, which oversees $73 billion.

“The ECB has intervened to separate the situation in Europe from that in the United States as Europe cannot afford tighter financial conditions,” the money manager founded by Edouard Carmignac said in a third-quarter strategy document dated yesterday and received today. “It seems reasonable to assume that yields in southern European countries will resume their convergence.”

The extra yield investors demand to hold Spanish 10-year bonds over equivalent-maturity German bunds has narrowed to 2.99 percentage points from this year’s high of 4.12 percentage points on Feb. 26. The Italian spread has dropped to 2.74 percentage points from a 2013 high of 3.61 percentage points on March 28.

The ECB meets to review policy on Aug. 1. President Mario Draghi this month took what he called an “unprecedented” step by telling investors interest rates would stay low as the economy struggles to emerge from recession. The ECB’s benchmark rate is at a record-low 0.5 percent.

To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net; 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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