Italy’s bonds fell for a third day as an industry report showing German business confidence unexpectedly worsened this month damped demand for the euro area’s higher-yielding government securities.
The extra yield investors demand to hold Italy’s 10-year debt instead of similar-maturity German bunds expanded to the widest in two weeks after data yesterday showed consumer confidence in Italy also declined. Italian notes dropped before the nation sells as much as 2.25 billion euros ($3.1 billion) of two-year securities next week. Spanish bonds declined for a second day. Benchmark German bunds were little changed.
“After months of positive data, optimism is waning a bit this week as the latest figures suggested that the pace of recovery is going to be slow,” said Michael Leister, a senior fixed-income strategist at Commerzbank AG in London. “That provides a good reason to take profits on Italian and Spanish bonds after their strong rally.”
Italy’s 10-year yield climbed six basis points, or 0.06 percentage point, to 4.22 percent at 4:29 p.m. London time after rising to 4.24 percent, the highest since Oct. 17. The 4.5 percent bond due in March 2024 dropped 0.53, or 5.30 euros per 1,000-euro face amount, to 102.72. The two-year note yield increased 10 basis points to 1.58 percent.
The extra yield on the 10-year securities over similar-maturity bunds expanded eight basis points to 246 basis points after reaching 248 basis points, the widest since Oct. 11.
The Ifo institute’s index of Germany’s business climate, based on a survey of 7,000 executives, fell to 107.4 from 107.7 in September. That compares with a median forecast of 108 in a Bloomberg News survey of economists. Reports yesterday showed Italian consumer confidence declined in October and euro-area services and manufacturing grew less than analysts forecast.
Citigroup Inc.’s Economic Surprise Index for the euro region dropped for an eighth day, sliding to 4.3, the lowest since July. The gauge, which shows whether data beat or fell short of economists’ forecasts, reached a five-month high of 55.8 on Aug. 30.
Italy’s Treasury will sell two-year zero-coupon notes on Oct. 28, as much as 750 million euros of inflation-linked bonds the same day, as well as bills on Oct. 29 and bonds on Oct. 30.
Volatility on Italian bonds was the highest in euro-area markets today, followed by those of Spain and Finland, according to measures of 10-year debt, the yield spread between two- and 10-year securities and credit-default swaps.
Spanish 10-year yields rose two basis points to 4.16 percent, while the two-year rate increased six basis points to 1.64 percent.
Germany’s 10-year yield was at 1.75 percent after falling as much as two basis points.
“Perhaps the economic recovery might not be as solid as some in the market hoped for,” said Lyn Graham-Taylor, a fixed-income strategist at Rabobank International in London. “The Ifo supports that economic story. That perhaps helped to support German bunds.”
Italian bonds returned 6.4 percent this year through yesterday, according to Bloomberg World Bond Indexes. Spain’s returned 10 percent, while Germany’s lost 1.5 percent.