The benchmark 10-year yield climbed to the highest level in four weeks as the nation sold 3.98 billion euros ($5.33 billion) of zero-coupon notes and inflation-linked bonds today, the first installment of 18.5 billion euros of supply scheduled for this week. Italy’s upper house will start the impeachment process on Berlusconi next month. German bunds rose as escalating tension in Syria boosted demand for Europe’s safest fixed-income assets.
“There’s a bit of caution in the way the markets are trading right now, with some anticipation of supply as well as more political noise potentially out of Italy,” said Orlando Green, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “The market wants reassurance that it’s going to be the case that the coalition will remain in place through the remainder of the year.”
Italy’s 10-year yield rose seven basis points, or 0.07 percentage point, to 4.45 percent at 4:30 p.m. in London time after climbing to 4.46 percent, the highest since July 30. The 4.5 percent note due in May 2023 fell 0.545, or 5.45 euros per 1,000-euro face amount, to 100.75.
The five-year yield jumped nine basis points to 3.34 percent after climbing to 3.35 percent, the most since July 18.
Berlusconi instructed his political allies yesterday to avoid public comments amid talks with Prime Minister Enrico Letta on changes to a controversial property tax. The fiscal debate, on the agenda of a cabinet meeting tomorrow, is shaping up as a prelude to a fight over Berlusconi’s political fate.
The extra yield investors demand to hold Italian 10-year bonds instead of similar-maturity German bunds expanded 11 basis points to 260 basis points after reaching 261 basis points, the widest since Aug. 5.
Italian bonds also underperformed Spanish securities, with the extra yield on Spanish 10-year debt over Italy’s shrinking to as little as three basis points, the least since March 2012.
Italy sold 2.98 billion euros of zero-coupon notes maturing in June 2015 at an average yield of 1.871 percent and 1 billion euros of inflation-linked bonds due in 2018 and 2026.
The Rome-based Treasury will auction 8.5 billion euros of bills tomorrow and 6 billion euros of bonds maturing in 2018 and 2024 on Aug. 29.
Italy’s five-year break-even rate, a gauge of inflation expectations derived from the yield difference between conventional and index-linked notes, fell one basis point to 0.96 percent after shrinking to 0.9, the least since July 26.
“There is little scope for break-evens to widen in the near term,” said Nick Stamenkovic, a strategist at RIA Capital Markets Ltd. in Edinburgh. “The main factor driving linkers will be the general appetite for risk, which has clearly deteriorated over the last few days.”
Germany’s benchmark 10-year bund yield fell five basis points to 1.85 percent after climbing to 1.98 percent on Aug. 23, the highest level since March 2012.
U.S. President Barack Obama’s administration is vowing to hold Syria’s government responsible for deadly chemical weapons attacks on its people as the nation and its allies move closer to a decision on retaliatory military strikes. Secretary of State John Kerry yesterday denounced an attack last week on a Damascus suburb as a “cowardly crime” requiring a response against Syrian President Bashar al-Assad’s regime.
Spain sold 4.2 billion euros of 84- and 259-day bills today, while Belgium auctioned securities due in five, 10 and 20 years. Spain’s 10-year yield rose four basis points to 4.50 percent, while the rate on similar-maturity Belgian debt fell three basis points to 2.75 percent.
Italian securities returned 3.7 percent this year through yesterday, according to Bloomberg World Bond Indexes. Spain’s earned 7.8 percent, while German bonds lost 2.4 percent.