Italian and Spanish bonds fell as investors bet that 10-year yields close to the lowest since at least 2010 may be untenable as a report showed the euro-area economy shrank more in the first quarter than analysts forecast.
Italy’s 30-year bonds dropped the most in almost two months, with the yield reaching the highest level in more than two weeks, after the nation said it will sell debt maturing in 2044 through banks. Spain allotted 7 billion euros ($9 billion) of new benchmark 10-year securities through banks yesterday. Germany’s 10-year bund yields fell from the highest in seven weeks as the data showed the region’s economy contracted for a record sixth quarter in the three months through March.
“Following such a huge rally that we’ve seen it’s logical that we get a correction at some point,” said Mathias Van Der Jeugt, a fixed-income strategist at KBC Bank NV in Brussels. “A second important factor is supply as we have seen new syndications. This supply pressure adds pressure on the Italian and Spanish yield curves.”
Italy’s 30-year yield increased five basis points, or 0.05 percentage point, to 4.85 percent as of 4:52 p.m. London time after climbing to 4.89 percent, the most since April 26. The 5 percent security maturing in September 2040 fell 0.71, or 7.10 euros per 1,000-euro face amount, to 103.275.
Ten-year yields rose as much as seven basis points to 4.09 percent, also the highest since April 26, before being little changed at 4.01 percent. They slid to 3.68 percent on May 3, the least since February 2006. Spain’s 10-year rate was also little changed at 4.34 percent after reaching 4.41 percent. It fell to 3.94 percent on May 3, the lowest since May 2010. The Spanish 30-year bond yield climbed four basis points to 4.99 percent.
Italy set the size of a sale of bonds maturing in September 2044 via banks at 6 billion euros, said a person familiar with the matter, who asked not to be identified because they’re not authorized to speak about it. Investors submitted bids for more than 12.7 billion euros of the securities and the bonds will be priced to yield 13 basis points more than the current 30-year benchmark, the person said.
Gross domestic product in the 17-nation euro area fell 0.2 percent in the first quarter, after a 0.6 percent drop in the previous three months, the European Union’s statistics office in Luxembourg said. The median of 39 estimates in a Bloomberg News survey was for a 0.1 percent contraction.
The European Central Bank, which lowered its benchmark interest rate to a record low 0.5 percent on May 2, forecasts that the euro economy will shrink 0.5 percent this year.
“We would steer clear of the long end of European curves,” Andrew Balls, head of European portfolio management at Pacific Investment Management Co. in London said in an interview with Francine Lacqua on Bloomberg Television’s “The Pulse” program. “What you see is very little growth and very little progress in terms of strengthening the institutions in Europe. The ECB, yes it has delivered finally a rate cut, but it’s reluctant to use its balance sheet. It doesn’t look like a great environment for investing.”
Germany’s 10-year bund yield was little changed at 1.38 percent after increasing to 1.41 percent, the highest since March 25.
Greek 10-year yields fell below 9 percent for the first time since October 2010 after Fitch Ratings raised the nation’s credit rating yesterday by one level.
Fitch cited Greece’s progress in rebalancing the economy and bringing its deficits under control as it raised the nation’s rating to B- from CCC and gave it a stable outlook.
Volatility on Dutch bonds was the highest in euro-area markets today followed by those of Greece and Ireland, according to measures of 10-year debt, the yield spread between two- and 10-year securities, and credit-default swaps.
Greece’s 10-year yield fell 53 basis points to 8.79 percent.
Italian bonds dropped 0.4 percent this month through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German and Spanish securities fell 0.9 percent.