Italian Notes Decline on Budget Goals Concern Before Bill Sale

Italy’s two-year bonds fell for a second day before the nation sells as much as 8.5 billion euros ($11.3 billion) of 182-day bills.

Germany’s 10-year bond yields approached a two-week low before a report economists said will show inflation in Europe’s biggest economy slowed this month. French bonds rose even after a report showed gross domestic product grew less than previously estimated. Finance ministers are preparing to meet later this week to discuss the euro region’s bailout provisions.

“There’s still a lot of insecurity” over how Italy can reach its budget goals, said Christian Reicherter, a Frankfurt-based analyst at DZ Bank AG, Germany’s fourth-largest bank. “It could be slightly more expensive for the Italian Treasury to sell these bills.”

The Italian two-year yield climbed two basis points to 2.64 percent at 9:08 a.m. London time. The 3 percent note due April 2014 fell 0.035, or 35 euro cents per 1,000-euro face amount, to 199.73 percent of face value.

Yields on German 10-year bonds were little changed at 1.90 percent. The yield fell to 1.855 percent on March 23, the least since March 13. French 10-year yields dropped three basis points to 2.93 percent.

European ministers are set to meet on March 30 in Copenhagen to discuss the prospect of combining the temporary European Financial Stability Facility bailout fund and its permanent successor, the European Stability Mechanism.

Break-Even Rate

The German 10-year break-even rate, a gauge of inflation expectations, rose to its highest since January. The rate, derived from the difference in yield on conventional and inflation-linked German securities, was at 1.82 percentage point, the most since Jan. 24.

A preliminary reading from the Federal Statistics Office will show German consumer price inflation, calculated using a harmonized European Union method, slowed to 2.3 percent from a rate of 2.5 percent in February, according to the median of 24 forecasts in a Bloomberg News survey.

German bunds have lost 0.2 percent this quarter, their worst quarterly performance since the three-months ending March 31, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies.