Italy’s bonds slumped, pushing the 10-year yield to the highest relative to German bunds this year, as Democratic Party leader Pier Luigi Bersani said there was no chance of a broad coalition to end a political deadlock.
Italian five-year yields jumped the most in a month as demand declined when the Treasury sold 6.91 billion euros ($8.84 billion) of debt at an auction today. Spanish and Greek bonds also slid as investors shunned the securities of so-called peripheral nations. Bersani was rejected by leaders of Beppe Grillo’s Five Star Movement after talks aimed at forming a governing coalition that was broadcast live on the Internet. German 10-year yields fell to the lowest in three months.
“It’s a combination of the political uncertainty coinciding with an auction that’s put Italian bonds under pressure,” said Jamie Searle, a fixed-income strategist at Citigroup Inc. in London. “The auctions weren’t the strongest and that’s meant Italian bonds continue to struggle post supply. Italian yields are likely to face upward pressure heading into the second quarter until there’s a much clearer resolution of the uncertainty.”
Italy’s 10-year yield climbed 21 basis points, or 0.21 percentage point, to 4.78 percent at 5 p.m. London time, up from 4.50 percent at the end of last year. The 5.5 percent bond maturing in November 2022 fell 1.625, or 16.25 euros per 1,000-euro face amount, to 105.92.
The extra yield investors demand to hold the securities instead of 10-year bunds widened as much as 29 basis points to 351 basis points, the most since Dec. 11.
“The decision for the Senate was to vote ‘no’ to a Democratic Party confidence vote for a government led by Bersani,” Vito Crimi, head of Five Star’s contingent in the upper house, told reporters after leaving the negotiating table.
Bersani, who’s struggling to get backing in the legislature after the Feb. 24-25 vote produced a hung parliament, may report back to President Giorgio Napolitano tomorrow or March 29 on whether he has enough support to form a government, a party spokeswoman said. The election gave Bersani a majority in the lower house, while leaving the Senate divided. Bersani has the biggest bloc in the upper house, with former premier Silvio Berlusconi second and Five Star third.
Italy’s five-year yield jumped 25 basis points to 3.58 percent, the biggest increase since Feb. 26.
Investors submitted bids for 1.33 times the 3 billion euros of 10-year bonds the Italian Treasury sold today, down from 1.65 times at the previous auction on Feb. 27. The bid-to-cover ratio for the 3.91 billion euros of five-year notes fell to 1.22 times from 1.61 times. Italy sold the new five-year securities at a yield of 3.65 percent, the highest since Oct. 30.
Lack of demand at the auction coupled with near-term political uncertainty should see Italian 10-year yields climbing toward 5.15 percent, Andy Chaytor a strategist at Nomura International Plc in London, wrote in a note to clients.
German bonds led gains in the securities of Europe’s core nations as investors sought safer assets. The 10-year bund yield dropped seven basis points to 1.27 percent, the lowest level since Dec. 10.
Germany’s two-year yields declined three basis points to minus 0.02 percent. A negative yield means investors who hold the security until it matures will receive less than they paid to buy it.
Spanish bonds declined as the government increased its estimate for last year’s budget deficit.
The budget shortfall was 6.98 percent of gross domestic product, excluding aid to the country’s banking industry, instead of the previously estimated 6.74 percent, Deputy Budget Minister Marta Fernandez Curras said in Madrid.
Spain’s 10-year yield rose 14 basis points to 5.08 percent, the highest level since March 18.
Cyprus’s bonds fell for the fifth day, with the yield on the 4.625 percent security due in February 2020 rising 154 basis points to 15.40 percent. The bid price was 56.27 and the offer price was 59.985.
Cyprus may announce what type of capital controls it plans to implement today as its leaders seek to prevent cash outflows when the nation’s banks reopen tomorrow. Lenders have been closed since a plan by the European Union to force losses on some bondholders and depositors in exchange for a 10 billion-euro bailout.
Capital controls, which will be in place for seven days to curb outflow of deposits, may include a ban on cashing checks and carrying cash of more than 3,000 euros across the border, Nicosia-based Phileleftheros reported, citing a draft Finance Ministry decree.
Greek bonds tumbled, with 10-year yields rising as much as 91 basis points to 13.04 percent, the highest since Dec. 20.
Volatility on Finnish bonds was the highest in euro-area markets today followed by those of the Netherlands and Italy, according to measures of 10-year debt, the yield spread between two- and 10-year securities, and credit-default swaps.
Slovenian dollar-denominated bonds slid for a second day on concern banking woes caused by bad loans will trigger a bailout request. The yield on the 5.5 percent securities due in October 2022 climbed 64 basis points to 6.39 percent.
Italian bonds returned 0.7 percent this quarter through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish securities gained 3.6 percent and German bunds rose 0.1 percent.