Spanish and Italian government bonds fell for a third day as investors awaited the release of minutes from the Federal Reserve’s July meeting for signals on when policy makers will curtail monetary stimulus.
Italy’s 10-year yield climbed to the highest level in two weeks after a newspaper reported that former Prime Minister Silvio Berlusconi threatened to withdraw his support from the current government. Germany’s bonds fell after yields increased at a sale of two-year notes. Portugal’s cost of borrowing for 12 months dropped as it auctioned 700 million euros ($937 million) of bills after the government resolved a rift in the ruling coalition last month.
“The focus of the market remains on the Fed minutes,” said Orlando Green, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “Tapering talk will continue to push yields higher unless upcoming economic numbers and the content of the minutes today change that view.”
Spain’s 10-year yield climbed six basis points, or 0.06 percentage point, to 4.53 percent at 4:18 p.m. London time after rising 11 basis points during the previous two days. The 4.4 percent bond due in October 2023 dropped 0.46, or 4.60 euros per 1,000-euro face amount, to 98.99.
Similar-maturity Italian yields increased five basis points to 4.36 percent after reaching 4.37 percent, the highest level since Aug. 2.
The Fed will reduce its $85 billion of monthly bond purchases at its next meeting on Sept. 17-18, according to 65 percent of economists in a Bloomberg survey conducted on Aug. 9-13. In a survey last month, half of the respondents predicted a September reduction.
“The Fed minutes will be an important driver,” said Alessandro Giansanti, a senior interest-rate strategist at ING Bank NV in Amsterdam. “We are approaching the month of September, where investors expect the beginning of the tapering.”
Berlusconi said he would resign unless Prime Minister Enrico Letta and his allies found a solution that will allow him to remain in politics, Corriere della Sera reported. Letta said today in Vienna he is confident internal political divisions can be overcome.
The extra yield investors demand to hold Italian 10-year securities instead of benchmark bunds widened one basis point to 248 basis points after expanding to 252 basis points, the widest since Aug. 9.
German bunds declined as the government allotted 4.09 billion euros of securities due in September 2015 at an average yield of 0.23 percent, up from 0.07 percent on July 10, and the highest for a two-year sale since March 2012.
Germany’s 10-year yield climbed four basis points to 1.88 percent after rising to 1.92 percent on Aug. 19, the most since March 27, 2012. The yield on two-year notes maturing in June 2015 increased two basis points to 0.22 percent.
Economists say German data tomorrow will show gauges of manufacturing and services improved this month. A manufacturing index based on a survey of purchasing managers rose to 51.1 from 50.7 in July, while one for services rose to 51.7 from 51.3, according to Bloomberg News surveys.
Portugal sold securities due in August 2014 at an average yield of 1.619 percent, down from 1.72 percent at the previous sale of similar-maturity bills on July 17. The government also sold 300 million euros of three-month bills at an average yield of 0.766 percent, versus 0.743 percent on April 17.
Portugal’s 12-month borrowing costs jumped to the highest in nine months in July before President Anibal Cavaco Silva endorsed Prime Minister Pedro Passos Coelho’s plan to keep his coalition government together.
The nation’s 10-year yield increased 10 basis points to 6.44 percent.
Volatility on German bonds was the highest in euro-area markets today followed by those of the Netherlands and Finland, according to measures of 10-year debt, the yield spread between two- and 10-year securities, and credit-default swaps.
Spanish securities returned 7.7 percent this year through yesterday, according to Bloomberg World Bond Indexes. Italy’s earned 4.1 percent, while German bonds lost 2.1 percent.