Italian government bonds fell for a second day as a gauge of manufacturing in China plunged to its lowest in more than six years, damping demand for riskier assets.
The extra yield, or spread, that investors get for holding Italian 10-year securities instead of similar-maturity German bunds reached its widest in more than five weeks after Greek Prime Minister Alexis Tsipras announced Thursday he would step down, paving the way for snap elections. Asian stocks slumped with commodities, while German 10-year yields dropped to their lowest level since June as investors sought haven assets.
“We have a combination of concerns about the knock-on effects on the European economy,” said Elwin de Groot, a senior market economist at Rabobank International in Utrecht, Netherlands. “From what is happening in China and emerging markets, to the uncertainties that are back in Greece” have seen “peripherals widening a bit against bunds, which have stabilized,” he said.
Italy’s 10-year bond yields rose four basis points, or 0.04 percentage point, to 1.86 percent as of 4:48 p.m. London time. The 1.50 percent security due June 2025 fell 0.33, or 3.30 euros per 1,000-euro ($1,135) face amount, to 96.875.
The yield spread between Italian 10-year securities and German bunds, Europe’s benchmark sovereign securities, widened to 130 basis points, the most since July 14.
German 10-year bund yields dropped two basis points to 0.56 percent, the lowest since June 2.
“Weaker growth in China feeds into lower commodity prices, weaker inflation and eventually lower rates globally,” strategists at Royal Bank of Scotland Group Plc, including Marco Brancolini, a London-based bond analyst, wrote in a note to clients. “We remain long 10-year bunds with high conviction and target 0.40 percent.”
A long position is a bet an asset will appreciate.
Greek bonds declined for a fourth day, with 10-year bond yields increasing 22 basis points to 9.77 percent. Those on two-year notes rose 59 basis points to 13.37 percent.
Yields on Greek bonds are still below levels reached in previous periods of upheaval. The two-year yield climbed above 63 percent last month amid concern a stand-off between the nation and its creditors would push it out of the euro. The yield exceeded 200 percent before Greece’s debt was restructured in 2012.