Italian Bonds Rise on Central Bank Plans

Italian 10-year bonds advanced for a fourth day, pushing the yield to less than 5 percent for the first time since March, after the Federal Reserve said it will take further steps to underpin the U.S. economy.

Germany’s 10-year bunds headed for their biggest two-week drop since November on reduced demand for haven assets after Fed Chairman Ben S. Bernanke said yesterday stimulus will be expanded until the Fed sees “sustained improvement” in the labor market. They underperformed all their euro-area peers as the region’s finance ministers met in Cyprus, a week after the European Central Bank said it would buy nations’ debt if they seek financial aid.

“The market is getting the impression that central banks across the globe are taking a whatever-it-takes approach” to resolve the debt crisis and boost growth, said Michael Leister, a fixed-income strategist at Commerzbank AG in London. “This is, of course, a very benign environment for risky assets. Yields have come down, spreads have come in and demand has been very strong at auctions in Spain and Italy.”

Italy’s 10-year yield slid five basis points, or 0.05 percentage point, to 4.96 percent at 12:55 a.m. London time, after dropping to 4.95 percent, the lowest level since March 21. The 5.5 percent bond due in September 2022 rose 0.38, or 3.80 euros per 1,000-euro ($1,310) face amount, to 104.675.

The euro strengthened for a fourth day against the dollar, rising 1 percent to $1.3121, the highest level since May 4. Ten-year Treasury yields jumped 10 basis points to 1.82 percent.

Greek Gains

Germany’s 10-year yield added as much as 14 basis points to 1.70 percent, the highest since May 2, before slipping to 1.68 percent. The yield is set for a 16 basis-point increase on the week, and has climbed from 1.33 percent on Aug. 31, set for the biggest two-week increase since Nov. 25.

The rate advanced through its 200-day moving average today for the second time since July 2011. It may climb to the highest since April if it closes above that level because it would “add to bearish market sentiment” toward the securities, George Davis, chief technical analyst for fixed-income and currency strategy at Royal Bank of Canada in Toronto, wrote in a client note dated yesterday.

The ECB’s plan to buy unlimited amounts of bonds pushed the yield above a key long-term trendline at 1.53 percent, he wrote.

Ministers Meet

Spanish notes slipped European finance ministers squared off over a possible aid program for Spain as they met in Nicosia, Cyprus, with creditors unwilling to commit until the government takes additional steps to boost competitiveness and rid the economy of debt. The two-year note yield rose five basis points to 2.99 percent, up from 2.74 percent on Sept. 7.

Greek 10-year debt headed for a fourth weekly gain, even after dropping yesterday, when Dow Jones reported that International Monetary Fund official Thanos Catsambas said the nation will need a third bailout. Catsambas denied the comments. The yield was little changed today at 20.79 percent.

“For at least three, six months I think everything will be stable and calm, and positive and bullish,” said Nicola Marinelli, who oversees $160 million at Glendevon King Asset Management in London. “The only thorny issue that I see still in Europe is Greece, because it’s not yet clear if they need a third bailout. If they go out of the euro then some kind of negative situation can develop.”

Marinelli spoke on Bloomberg Television’s “On The Move” with Francine Lacqua.

Bond Volatility

A report today showed euro-area inflation accelerated for the first time in 11 months in August as rising energy costs threatened to exacerbate the economic slump. Consumer prices increased 2.6 percent from a year earlier, the European Union’s statistics office in Luxembourg said today, matching an initial estimate on Aug. 31.

Volatility on German bonds was the highest in euro-area markets today, followed by the Netherlands and France, according to measures of 10-year or equivalent-maturity debt, the spread between two-year and 10-year securities and credit-default swaps.

Italian bonds returned 15 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish securities advanced 1.7 percent, while German debt made 2.5 percent.

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