Italian Bonds Fall Before Debt Sale Tomorrow; Bunds Decline

Italy’s government bonds fell, with 10-year (GSPG10YR) yields rising to the highest level in almost two weeks, before the nation sells as much as 9 billion euros ($12.5 billion) of debt tomorrow.

The Rome-based Treasury plans to auction as much as 3.5 billion euros of five-year securities and 3 billion euros of 10-year bonds, as well as 2.5 billion euros of floating-rate notes due in November 2019. The Federal Reserve meets this week to set monetary policy, followed by the European Central Bank next week. German 10-year bunds declined as a rally in stocks, fueled by a surge in deal-making activity, damped demand for the safest fixed-income securities.

“The auction tomorrow is playing a large part in the widening of Italian spreads,” said Alessandro Giansanti, a fixed-income strategist at ING Groep NV in Amsterdam. “There’s also some profit taking from investors on peripheral bets. The main events are going to be upcoming Fed and ECB meetings.”

Italian 10-year yields rose three basis points, or 0.03 percentage point, to 3.13 percent at 4:12 p.m. London time after reaching 3.14 percent, the highest since April 15. The 4.5 percent bond maturing in March 2024 fell 0.255, or 2.55 euros per 1,000-euro face amount, to 111.7.

Germany’s 10-year yield rose two basis points to 1.50 percent. The Stoxx Europe 600 Index of shares and Standard & Poor’s 500 Index (SPX) climbed 0.2 percent.

Pfizer Inc. said it’s interested in a deal to buy AstraZeneca Plc, Britain’s second-biggest drugmaker, while the U.S.’s General Electric Co. and Germany’s Siemens AG have made offers for French engineering company Alstom SA.

Average Yield

The average yield to maturity on bonds from Greece, Ireland, Italy, Portugal and Spain rose to 2.23 percent on April 25 according to Bank of America Merrill Lynch indexes, after falling to 2.19 percent on April 23, the lowest in the history of the currency bloc. The rate was as high as 9.55 percent in 2011.

Slovenia’s 10-year bonds dropped for a fourth day amid speculation the nation’s Prime Minister Alenka Bratusek will step down after being ousted as her party’s leader.

Bratusek, Slovenia’s third prime minister since 2011, helped the country avoid joining other euro-zone members in need of an international bailout. In return, she has fought criticism for spending 3.2 billion euros to rescue the banking industry and pushing austerity and asset-sale programs that improved investor confidence and allowed bonds to recover.

Credit Negative

“This is clearly credit negative and bonds should trade meaningfully wider,” Abbas Ameli-Renani, an emerging-markets strategist at Royal Bank of Scotland Group Plc in London, wrote in an e-mailed note. Early elections could leave Slovenia “with no functioning government for a period of three-to-four months, bringing the process of privatization and structural reform to a halt.”

The rate on Slovenia’s 10-year bond climbed 18 basis points to 3.87 percent. The price of the 4.625 percent security due September 2024 fell 1.625 to 106.3.

Italian bonds returned 6.6 percent this year through April 25, according to Bloomberg World Bond indexes. Spain’s earned 7.1 percent and Germany’s gained 3.1 percent.

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

To contact the reporters on this story: Neal Armstrong in London at narmstrong8@bloomberg.net; Lucy Meakin in London at lmeakin1@bloomberg.net

To contact the editors responsible for this story: Paul Dobson at pdobson2@bloomberg.net Mark McCord, Keith Jenkins

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