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Italian Yields Climb to Records Before Berlusconi Tested by Vote

Italian bonds dropped, pushing 10-, five- and two-year yields to euro-era records, as the nation was pressed to implement budget cuts and Prime Minister Silvio Berlusconi faced a parliamentary vote amid calls to resign.

German government bonds declined for the first time in three days as stocks rose and after data showed exports unexpectedly gained for a second month in September. European Union finance ministers yesterday ordered Greece to provide written acceptance of bailout terms to win an 8 billion-euro ($11 billion) loan installment this month and called on Italy to enact measures to slash its deficit.

Italy’s 10-year bond was one basis point higher at 6.67 percent at 9:01 a.m. London time, after rising to a record 6.74 percent. That pushed the difference in yield, or spread, over German securities to as wide as 496 basis points. The 4.75 percent security maturing September 2021 dropped 0.085, or 85 euro cents per 1,000-euro ($1,375) face amount to 87.035. The Italian two-year note yield climbed four basis points to 6.14 percent.

Berlusconi yesterday denied a report in Il Foglio that he is on the verge of resigning to make way for an Italian unity government with a budget-cutting mandate. A test of strength comes at 3.30 p.m. in Rome today on a normally routine vote to rubber-stamp last year’s budget report that may show whether Berlusconi still has a majority in the 630-seat Chamber of Deputies. Should the premier fail to muster 316 votes, he would probably face a confidence vote that will decide his fate.

German Exports

Yields on 10-year German bunds advanced five basis points to 1.83 percent. The two-year yield gained three basis points to 0.41 percent.

Exports in Europe’s largest economy, adjusted for work days and seasonal changes, increased 0.9 percent from August. That compares to a drop of 0.8 percent predicted by the median estimate in a Bloomberg News survey of economists.

European finance ministers meeting in Brussels yesterday pledged to roll out a bulked-up rescue fund next month. Finance chiefs intend to complete “legal and operational work” by the end of November, with implementation set for December, according to a presentation by the rescue fund, known as the European Financial Stability Fund.

The Netherlands is scheduled to auction up to 2.5 billion euros of 10-year bonds today and Austria will sell debt maturing in 2016 and 2021. Greece plans to tender 1 billion euros of 182-day bills.

German bonds have returned 8.7 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies, while Italian debt lost 8.2 percent and Greek government securities were down 52 percent.

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