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Germany’s Bonds Snap Three-Day Drop Before Italian Debt Auctions

Germany’s 10-year bonds snapped a three-day decline as Italy prepared to sell as much as 5.5 billion euros ($7.6 billion) of 2018 and 2024 securities today in the region’s final auction of government debt this year.

Italian 10-year yields climbed to a three-week high. The rate on benchmark German bunds rose earlier to the highest since September (GDBR10) before a report this week economists said will confirm euro-area manufacturing expanded at a faster pace this month. Rates on the securities are set for their first annual increase since 2009.

“The key will be obviously that we’ve had a decent rise in global fixed-income yields over the past week or so, and is that a liquidity thing or is it something more meaningful,” said Andy Chaytor, a strategist at Nomura Holdings Inc. in London. “If we hold on to those increases in yields then it will start people worrying about whether there’s a more substantial selloff coming. We really have to wait until Thursday for normal market conditions to reassert themselves.”

Germany’s 10-year yield was little changed at 1.95 percent as of 9:26 a.m. London time, after climbing to 1.96 percent, the highest since Sept. 23. The price of the 2 percent security due in August 2023 was 100.405.

Bund yields will climb to 2.25 percent by the end of 2014, according to the median estimate of economists and strategists in a Bloomberg News survey.

Italian Auction

Italy plans to raise as much as 2.5 billion euros with today’s auction of 4.5 percent bonds maturing in 2024. The last time it sold the securities, on Nov. 28, it drew a yield of 4.01 percent, versus an average of 4.35 percent for the year to date. Investors bid for 1.53 times the amount sold, the highest bid-to-cover ratio since February.

Italy’s 10-year yield was little changed at 4.22 percent today after increasing to 4.24 percent, the most since Dec. 6.

The Rome-based Treasury is also selling as much as 3 billion euros of five-year notes.

An index based on a survey of purchasing managers in the euro region’s manufacturing industry increased to 52.7, a 31-month high, from 51.6 in November, London-based Markit Economics will say on Jan. 2, according to the median estimate in a Bloomberg News survey of analysts.

German securities lost 2.3 percent this year through Dec. 27, according to Bloomberg World Bond Indexes. Italy’s earned 7 percent and Spain’s returned 11 percent as the sovereign debt crisis that roiled the region since 2009 started to ease.

To contact the reporter on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net

To contact the editor responsible for this story: Nicholas Reynolds at nreynolds2@bloomberg.net

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