German Bunds Slide as Monti Comments Boost Spanish, Italian Debt

German bunds fell, with 10-year yields rising the most in a month, as Italian Prime Minister Mario Monti’s comment that his country doesn’t need a bailout reduced demand for the region’s safest securities.

Five-year German notes declined after the nation sold 3.4 billion euros ($4.18 billion) of the debt at the lowest yield on record. Italian bonds advanced before European Central Bank policy makers meet tomorrow. Spain’s securities also gained after two people in Madrid said Economy Minister Luis de Guindos is pushing for additional budget cuts after Germany signaled such a move would be rewarded by bond-market assistance.

“There is a little bit of risk sentiment in the market, Spanish yields are lower, as the market still thinks there’s a chance that Europe’s leaders are working to stem the crisis,” said Allan von Mehren, a fixed-income strategist at Danske Bank A/S in Copenhagen. “There is some shorting of bunds because people see them as too expensive.” A short position is a bet an asset will decline.

Germany’s 10-year yield rose nine basis points, or 0.09 percentage point, to 1.37 percent at 4:36 p.m. London time, after advancing as much as 11 basis points, the biggest intraday increase since June 29. The 1.75 percent bund due in July 2022 dropped 0.805, or 8.05 euros per 1,000-euro face amount, to 103.495.

Italy’s economy doesn’t need a bailout, Monti said in an interview with Finnish newspaper Helsingin Sanomat. The country may need some support as “markets are slow to understand the measures it has taken and all it has achieved,” the paper reported him as saying.

‘Possible Intervention’

“We’re thinking of a possible intervention in various combinations involving the EFSF, the ESM and the ECB,” Monti said, referring to the temporary European Financial Stability Facility, the permanent European Stability Mechanism and the European Central Bank.

Italy’s 10-year yield dropped 15 basis points to 5.93 percent, shrinking the spread over similar-maturity German yields by 24 basis points to 456 basis points. Spain’s 10-year yield declined two basis points to 6.73 percent.

Spain’s De Guindos wants further cuts in health and education spending after Germany signaled to him that such a move would be rewarded by bond market assistance, according to the two people in Madrid familiar with his thinking.

Germany sold 3.35 billion euros of five-year notes at an average yield of 0.31 percent, the least on record, the Bundesbank said. Investors bid for 8.6 billion euros of the securities, compared with a maximum target of 4 billion euros, according to the data.

The yield on Germany’s five-year note climbed five basis points to 0.36 percent.

Most Volatile

Volatility on German bonds was the highest in euro-area markets today, followed by Spain, according to measures of 10-year bonds, the spread between two-year and 10-year securities and credit-default swaps. The change in the German spread was 2 1/2 times the 90-day average.

Belgian bonds declined after a report showed gross domestic product in the nation -- the sixth-largest economy in the 17-nation euro area -- fell 0.6 percent from the first quarter.

The nation’s 10-year yield climbed one basis point to 2.61 percent, after falling to a record 2.39 percent on July 20.

German bunds returned 4.1 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish securities dropped 5.1 percent, and Italy’s bonds rose 7.3 percent.