Italian Bonds Extend Five-Day Losing Streak Before Debt Auctions

Italy’s 10-year bonds declined for a fifth day, the longest streak in 10 months, before the nation sells 6.75 billion euros ($8.95 billion) of securities due in 2018 and 2024 tomorrow.

German 10-year bunds were little changed before European Central Bank policy makers meet in Frankfurt on Aug. 1. Belgium sold bonds due between 2018 and 2041, Italy auctioned 8.5 billion euros of six-month securities and investors bought 7.68 billion euros of French bills. Italian debt also declined amid concern that a tax-fraud hearing faced by Silvio Berlusconi, coalition partner of Prime Minister Enrico Letta, will cause political instability.

“Maybe investors are looking at the auction tomorrow and saying I don’t want to take a risk at the moment and don’t want to be too involved in BTPs,” said Christian Lenk, a fixed-income analyst at DZ Bank AG in Frankfurt, referring to Italian bonds. “I could well imagine that we see some pre-auction concessions in the market.”

Italy’s 10-year yield rose six basis points, or 0.06 percentage point, to 4.46 percent at 4:34 p.m. London time. The 4.5 percent bond due in May 2023 fell 0.43, or 4.30 euros per 1,000-euro face amount, to 100.705. The five-day increase in yield is the longest since the period ended Sept. 26.

If Italy’s top court upholds a tax-fraud conviction against Berlusconi tomorrow, People of Liberty party ministers may resign from the government, Transport Minister Maurizio Lupi said in an interview with Repubblica published today.

German Bunds

The German 10-year bund yield was at 1.66 percent after rising two basis points to 1.69 percent. It climbed 15 basis points last week.

The rate on similar-maturity Belgian debt slipped two basis points to 2.55 percent. The additional yield, or spread, investors demand to hold the bonds over bunds narrowed two basis points to 89 basis points.

Improvement in the euro-area economy will be the “main driver” and likely cause of the Belgian spread narrowing further, UniCredit SpA strategists led by Michael Rottmann, head of fixed-income research in Munich, wrote in a note to clients.

Belgium sold 10-year bonds at an average yield of 2.549 percent down from 2.762 percent at an auction on June 24. That compares with a record low of 1.971 percent in April.

Spanish 10-year yields increased six basis points to 4.68 percent.

Open Mind

Bunds have yielded between 1.50 percent and 1.74 percent since July 4 when ECB President Mario Draghi said officials would keep interest rates low or lower for “an extended period.” While the yield has climbed 53 basis points from a record low in June 2012, it’s still more than 150 basis points less than its 3.24 percent average for the past decade.

Draghi also said after the central bank’s last policy meeting that officials had an open mind on whether to cut the deposit rate that the ECB pays lenders who park excess funds with it overnight below zero.

The Frankfurt-based ECB will keep its refinancing rate at 0.5 percent and the deposit rate at zero after its Aug. 1 meeting, according to Bloomberg surveys of economists. The Federal Reserve also meets this week to discuss whether to taper its program of $85 billion monthly debt purchases. U.S. policy makers have kept their target for overnight lending in a range of zero to 0.25 percent since December 2008.

“Overall the rhetoric of the central banks will remain relatively dovish and that should be the main supporting factor,” said Marius Daheim, a senior fixed-income strategist at Bayerische Landesbank in Munich. “We will see a sideways market over the next couple of weeks.”

Volatility on Finnish bonds was the highest in euro-area markets today followed by those of Germany and Belgium, according to measures of 10-year debt, the yield spread between two- and 10-year securities, and credit-default swaps.

Italian bonds returned 3 percent this year through July 26, according to Bloomberg World Bond Indexes. German and Belgian bonds lost investors 1.3 percent.

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