(Corrects size of yield premium in sixth paragraph.)
Italian 10-year bond yields rose above those of Spain for the first time in 18 months amid speculation a vote on whether to expel Silvio Berlusconi from Italy’s Senate will destabilize the coalition government.
Spanish securities outperformed all but one of their euro-area counterparts, narrowing the additional yield investors demand to hold them instead of benchmark German bunds toward the least in more than two years. Bunds tumbled as Chinese economic data that exceeded analyst estimates and an easing of political tension related to Syria damped demand for the safest assets. Germany sold 910 million euros ($1.21 billion) of inflation-linked debt.
“The move has been driven by rising uncertainty with respect to the political situation in Italy,” Luca Cazzulani, a senior fixed-income strategist at UniCredit SpA (UCG) in Milan, said of the yield spread with Spain’s bonds. “In the past we have seen Italian yields above Spanish in periods of tension. From a macro perspective there are no big changes between Spain and Italy. Both have seen improving data.”
Italian 10-year yields advanced one basis point, or 0.01 percentage point, to 4.53 percent at 4:33 p.m. London time. The 4.5 percent bond due May 2023 fell 0.05, or 50 euro cents per 1,000-euro face amount, to 100.15.
The yield on similar-maturity Spanish debt fell three basis points to 4.51 percent. The last time Spain’s yields were less than Italy’s was March 6, 2012.
As recently as July investors demanded a yield premium of 42 basis points to hold Spain’s 10-year bonds instead of Italy’s amid concern the Iberian nation’s economy was struggling to grow and as Prime Minister Mariano Rajoy faced allegations from a former colleague that he received payments from a secret fund, claims he denies.
Demand for the debt was boosted by data including a Sept. 4 report showing a gauge of the nation’s service industries expanded last month for the first time since June 2011.
Italian 10-year yields have climbed 13 basis points since Berlusconi said on Aug. 30 that his People of Liberty Party may withdraw its support for the government if he is ousted. The rate is still almost three percentage points lower than its euro-area record high of 7.48 percent in November 2011.
A key vote in an Italian Senate panel on his expulsion may take place today, according to its head, Dario Stefano. The full Senate will then have the final word on the matter.
“The global macro backdrop has been more positive since the Syria issue seems to be taking a back step,” said Laurent Fransolet, head of European fixed-income strategy at Barclays Plc in London. “They’re all factors that are contributing to an outperformance of Spain and Italy, but Spain has the advantage of not having the Berlusconi stuff hanging over it.”
Investors have shown interest for Spain to sell a 50-year bond, though not immediately, an Economy Ministry spokeswoman who asked not to be named in line with government policy said in a telephone interview.
Germany’s 10-year yield rose seven basis points to 2.03 percent after climbing to 2.05 percent on Sept. 6, the highest level since March 2012. The Spain-Germany yield spread narrowed 10 basis points to 248 basis points. It reached 244 basis points on Aug. 19.
Chinese factory production rose 10.4 percent in August from a year earlier, the National Bureau of Statistics said in Beijing, compared with a median forecast of 9.9 percent in a Bloomberg News survey of economists. Retail sales advanced 13.4 percent, also topping estimates.
President Barack Obama said he would put a U.S. strike on Syria on hold if the nation followed through on a proposal to surrender its chemical weapons.
“A Chinese slowdown is a big worry for the market so today’s industrial production data is putting some bearish pressure on core government bonds,” said Alessandro Giansanti, a senior rates strategist at ING Groep NV in Amsterdam. “Lessening of the risks for Syria is reducing the flight to quality. We also have quite a lot of supply this week, which is leading to higher yields.”
Europe’s largest economy sold the 10-year index-linked bonds at a real yield of 0.36 percent, up from 0.06 percent when it last sold the debt on June 11. The 10-year German break-even rate, a gauge of expectations for inflation over the next decade, was little changed today at 1.63 percentage points. The nation will also offer 5 billion euros of 10-year bunds tomorrow.
The Netherlands sold 2 billion euros of 10-year bonds at an average yield of 2.412 percent, up from 2.061 percent at the previous auction on July 9.
Dutch 10-year bond yields rose six basis points to 2.45 percent. The French 10-year yield gained seven basis points to 2.63 percent. Similar-maturity Greek yields fell 26 basis points to 10.24 percent.
Belgium is selling 4 billion euros of 30-year bonds via banks today.
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.
Italian bonds returned 3 percent this year through yesterday, according to Bloomberg World Bond Indexes. Spanish debt rose 7.7 percent and German bunds lost 2.7 percent. Dutch securities dropped 3.3 percent.
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