Italian government bonds fell as demand declined at an auction of 10-year debt after a slide in borrowing costs to the lowest level in more than two years last week fueled concern the securities are too expensive.
Italy’s 10-year yields climbed to a four-week high after a report showed consumer confidence unexpectedly declined to the lowest in at least 17 years. German 10-year bund yields reached the most since September after unemployment declined more than analysts’ forecast in January, adding to signs that Europe’s largest economy is gathering pace. Irish two-year notes climbed for a fifth week, the longest run of gains since September, as Natixis Asset Management said it is buying the nation’s bonds.
“The Italian auctions weren’t spectacular, given the relatively expensive levels,” said Michael Leister, a fixed-income strategist at Commerzbank AG in London. “The market was digesting the supply and there was also some profit taking after the significant rally that we’ve seen this year.”
Italian 10-year yields climbed 20 basis points, or 0.20 percentage point, over the week to 4.33 percent at 4:37 p.m. London time yesterday, after reaching 4.41 percent on Jan. 31, the highest level since Jan. 2. The 5.5 percent security due November 2022 fell 1.665, or 16.65 euros per 1,000-euro ($1,370) face amount, to 109.590. The rate dropped to 4.07 percent on Jan. 25, the least since Nov. 10, 2010.
The Rome-based Treasury sold 3.5 billion euros of 10-year debt on Jan. 30 at 4.17 percent, down from 4.48 percent at the previous auction on Dec. 28 and the lowest since Oct. 28, 2010. Investors bid for 1.32 times the amount of the 10-year debt allotted, down from 1.47 times in December. The nation also sold 3 billion euros of notes due in 2017.
Italy’s consumer confidence index dropped to 84.6, the least since the series began in 1996, from 85.7 percent in December, data released on Jan. 28 showed. The number of people out of work in Germany fell 16,000 to 2.92 million, a separate report on Jan. 31 showed. Economists predicted an increase of 8,000, according to a Bloomberg News survey.
German 10-year yields advanced three basis points to 1.67 percent. The rate on Ireland’s two-year notes dropped four basis points to 1.36 percent, taking its six-week decline to 82 basis points.
The European Central Bank will leave its benchmark interest rate at 0.75 percent when it meets on Feb. 7, according to all 58 analysts in a Bloomberg News survey. Spain plans to sell securities maturing in 2015, 2018 and 2029 on Feb. 7, while Germany will auction 4 billion euros of 0.5 percent 2018 notes the day before.
“We expect the ECB to hold policy steady,” Victoria Clarke, an economist at Investec Securities in London, wrote in a note to clients on Jan. 31. “With economic indicators having, if anything, strengthened modestly since that last meeting, a steady main refinancing rate seems the most likely outcome.”
Italian bonds returned 1.5 percent this year through Jan. 31, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Irish securities gained 2.3 percent, while German bunds handed investors a loss of 1.8 percent.