Italian Yields Drop on Political Optimism; Portugal’s Bonds Rise

Italian government bonds rose, extending a weekly advance, on optimism the nation’s coalition government is stabilizing after Prime Minister Enrico Letta won a confidence vote in parliament this week.

Italy’s 10-year securities climbed for the third time in four days as Letta’s victory averted the risk of holding another election. Portuguese bonds rose for a second day after the nation passed the eighth and ninth reviews of its aid plan. German bonds slid with Treasuries amid speculation U.S. lawmakers will resolve a standoff over the nation’s budget, damping demand for the safest assets. Spanish debt also gained.

“We’re probably in the best shape that we’ve been in for Italian politics in a long time,” Jim McCormick, head of asset-allocation research at Barclays Plc in London, said on Bloomberg Television’s “On the Move” with Mark Barton. “You play Italy week by week, month by month, this has been a good week. Our strategists think you can still be long peripheral debt in this market,” referring to a bet the securities of Europe’s most-indebted nations will rise.

Italy’s 10-year yield fell six basis points, or 0.06 percentage point, to 4.31 percent at 4:18 p.m. London time. The 4.5 percent bond due in March 2024 rose 0.48, or 4.80 euros per 1,000-euro ($1,360) face amount, to 101.92. The yield on the securities has dropped 25 basis points this week

Berlusconi Future

Letta’s five-month-old coalition won support from 235 of the Senate’s 321 lawmakers on Oct. 2 as former premier Silvio Berlusconi backtracked on his pledge to bring down the government. Berlusconi’s future in politics hangs in the balance today after a senate panel recommended his expulsion from the upper house following an August tax-fraud conviction. The matter will now be put before the Senate for a final vote.

Portugal’s government yesterday raised its 2014 growth forecast to 0.8 percent from 0.6 percent, while keeping its deficit targets unchanged as it attempts to exit its bailout program. The nation is trying to regain full access to debt markets with the end of the 78 billion-euro rescue plan approaching in June 2014.

“There are early signs of a recovery in economic activity,” the International Monetary Fund said yesterday in a joint statement with the European Commission and European Central Bank.

The yield on Portugal’s 10-year bonds dropped 20 basis points to 6.41 percent after touching 6.39 percent, the lowest since Aug. 21. The rate on similar-maturity Spanish bonds fell three basis points to 4.22 percent.

Pimco, BlackRock

German bonds declined for the fourth time in five days as Bill Gross of Pacific Investment Management Co. and BlackRock Inc. (BLK)’s Larry Fink said the U.S. debt standoff will be resolved soon, limiting damage to the economy.

The benchmark 10-year (GBTPGR10)bund yield rose four basis points to 1.83 percent. The yield on 10-year U.S. notes climbed three basis points to 2.64 percent.

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

An Oct. 10 report will show Italy’s industrial production rose 0.6 percent in August compared with a 1.1 percent decline in July, according to the median of economist estimates in a Bloomberg News survey. The nation plans to auction bonds the following day.

Italian securities returned 4.7 percent this year through yesterday, according to Bloomberg World Bond Indexes. Spain’s rose 9.5 percent and Germany’s advanced 1.6 percent.

To contact the reporters on this story: Neal Armstrong in London at narmstrong8@bloomberg.net; David Goodman in London at dgoodman28@bloomberg.net

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net

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