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Italian Bonds Rise as Export Data Spurs Demand for Higher Yields

Aug. 8 (Bloomberg) -- Italian 10-year bonds rose for a third day, outperforming their German counterparts, as reports showing exports increased in China and Germany spurred demand for higher-yielding assets.

Italian benchmark yields fell to the lowest level in eight weeks. Spanish bonds also advanced. German bonds were little changed before a euro-area report next week that analysts said will show the region’s economy expanded for the first time in seven quarters. Chinese exports to the European Union and the U.S. increased for the first time in five months.

“The Chinese export data to Europe is significant in that it suggested the economic recovery here may be stronger than we thought,” said Soeren Moerch, head of fixed-income trading at Danske Bank A/S in Copenhagen. That’s a factor supporting higher-yielding euro-region bonds, he said.

The yield on Italian 10-year bonds dropped five basis points, or 0.05 percentage point, to 4.20 percent at 4:33 p.m. London time, the lowest since June 10. The 4.5 percent security due in May 2023 rose 0.4, or 4 euros per 1,000-euro ($1,339) face amount, to 102.675.

Similar-maturity Spanish yields also declined five basis points, to 4.52 percent.

The yield difference between Italian 10-year securities and similar-maturity German debt narrowed four basis points to 2.53 percentage points.

German exports rose 0.6 percent in June from May, when they dropped 2 percent, the Federal Statistics Office said. Chinese shipments overseas climbed 5.1 percent in July from a year earlier after sliding 3.1 percent in June, according to the General Administration of Customs in Beijing.

Flat-Lining

“You are now seeing Europe broadly flat-lining after being in recession,” Michael Amey, a money manager at Pacific Investment Management Co. in London, said in an interview on Bloomberg Television’s “The Pulse” with Francine Lacqua and Guy Johnson. “We should be pleased that bond yields have stabilized in southern Europe. Certainly it is good news that we’ve got to a period where growth is flat-lining as opposed to being in a semi-permanent recession.”

The German 10-year bund yielded 1.68 percent after increasing to 1.73 percent on Aug. 2, the highest level since July 5. The rate on French 10-year debt was little changed at 2.24 percent.

Gross domestic product in the euro area increased 0.2 percent in the second quarter from the previous three months, according to the median estimate of economists surveyed by Bloomberg News before the number is released on Aug. 14. The annual inflation rate was unchanged at 1.6 percent in July, a separate survey showed ahead of the data on Aug. 16.

Long Positions

“The case for long positions in large peripherals remains compelling given improving growth prospects, high risk-adjusted carry and supportive trading conditions,” Michael Leister, a senior fixed-income strategist at Commerzbank AG wrote in a note to clients. “We expect yields to grind lower in the absence of bearish news.”

A long position is a bet a security will rise in value.

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

To contact the reporters on this story: Emma Charlton in London at echarlton1@bloomberg.net; Anchalee Worrachate in London at aworrachate@bloomberg.net

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net

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