Italy Leads European Bonds Lower as Data Fuel Fed Tapering Bets

Italy’s bonds led losses in European government securities as a drop in U.S. jobless claims and an increase in the cost of living boosted bets the Federal Reserve will cut stimulus, damping demand for fixed-income assets.

Italian 10-year yields jumped to the highest in almost two weeks as securities issued by Germany, France, Belgium and Austria all declined. German benchmark yields climbed to the highest level in 16 months amid signs the euro-area recovery is gaining momentum. Portuguese (GSPT10YR) bonds advanced for a fourth day after a report yesterday showed the economy expanded for the first time since 2010.

“There’s a broad-based selloff of fixed-income,” said Peter Schaffrik, head of European interest-rates strategy at Royal Bank of Canada in London. “The data set we’ve seen has been strong. The story is people betting on higher rates.”

Italy’s 10-year yield rose seven basis points, or 0.07 percentage point, to 4.25 percent at 4:27 p.m. London time after climbing to 4.29 percent, the highest since Aug. 5. The 4.5 percent bond due in May 2023 fell 0.515, or 5.15 euros per 1,000-euro ($1,326) face amount, to 102.31.

Similar-maturity Austrian yields added six basis points to 2.26 percent, while France’s rose seven basis points to 2.41 percent and those in the Netherlands increased seven basis points to 2.25 percent.

Growth Signs

U.S. jobless claims fell to 320,000 last week, the fewest since October 2007, the Labor Department said. The cost of living increased for a third month, with the consumer-price index increasing 0.2 percent after a 0.5 percent gain in June, a separate report showed.

Gross domestic product in the euro region rose 0.3 percent in the second quarter after shrinking 0.3 percent in the previous three months, the European Union statistic’s office said yesterday.

Germany’s 10-year yield climbed six basis points to 1.88 percent after reaching 1.91 percent, the highest level since March 2012.

“There’s an acknowledgment that the economy is turning around,” said Michael Leister, a senior fixed-income strategist at Commerzbank AG in London. “The markets are thin and that’s exaggerating the move. We think pressure will stay on bunds, however there may be some buyers above 1.80 percent and the jury remains out as to whether the positive-growth run we’ve seen can extend.”

Most Volatile

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

Portuguese 10-year yields declined eight basis points to 6.42 percent after falling to 6.37 percent, the lowest level since Aug. 2. They surged to a record 18.29 percent in January 2012 as the region’s debt crisis escalated.

The nation’s GDP rose 1.1 percent from the first quarter, when it fell 0.4 percent, the Lisbon-based National Statistics Institute said yesterday. That followed 10 consecutive quarters of contraction.

German bonds lost investors 2 percent this year through yesterday, according to Bloomberg World Bond Indexes. Italy’s securities returned 4.6 percent and Spain’s earned 8 percent.

To contact the reporters on this story: Lucy Meakin in London at lmeakin1@bloomberg.net; Emma Charlton in London at echarlton1@bloomberg.net

To contact the editor responsible for this story: Nicholas Reynolds at nreynolds2@bloomberg.net

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