Italian Bonds Fall 2nd Day as EU Finance Ministers Meet

Italy’s government bonds fell for a second day as the nation moved closer to a new election and European leaders demanded euro members press on with budget cuts to end the region’s sovereign-debt crisis.

Italian 10-year yields approached the highest level in more than three months as European Union finance ministers meet in Brussels today to discuss issues including a bailout for Cyprus. In Rome, Stefano Fassina, a top aide to Democratic Party leader Pier Luigi Bersani, said Italy may need to hold another vote this year after passing new electoral laws. Spanish 10-year securities and benchmark German bunds were little changed.

“Given past events the market is a bit wary of policy risks for the time being and this will be the key story for today,” said Michael Leister, a fixed-income strategist at Commerzbank AG in London. “Bunds should remain supported while peripherals should trade with a widening bias or yields rising,” he said, referring to higher-yielding euro-sovereign debt.

Italy’s 10-year yield climbed nine basis points, or 0.09 percentage point, to 4.88 percent at 4:35 p.m. London time. The rate rose to 4.96 percent on Feb. 27, the most since Nov. 15. The 5.5 percent security maturing in November 2022 fell 0.66, or 6.60 euros per 1,000-euro ($1,300) face amount, to 105.21.

Italy may hold new elections this year if Bersani and his Democratic Party fail to find enough backing in parliament to form a government, Fassina, the group’s economic policy spokesman, told Sky TG24 TV yesterday.

Italian Stalemate

Hours later, Bersani insisted he would form a government on his own without seeking an alliance with his main rivals, ex-premier Silvio Berlusconi and comedian-turned-politician Beppe Grillo, who both campaigned to reverse austerity measures implemented by outgoing Prime Minister Mario Monti to contain the country’s financial crisis.

EU Economic and Monetary Affairs Commissioner Olli Rehn told Der Spiegel magazine at the weekend there’s no scope for the bloc to let up on budget discipline, while German Chancellor Angela Merkel last week urged Italy to stick to the path of reform after the success of anti-austerity parties in last month’s election.

Spanish bonds advanced earlier as a report showed the number of jobless claims slowed in February, lending support to the government’s view that the country has overcome the worst of a six-year slump.

Spanish Unemployment

The number of registered unemployed in the euro region’s fourth-largest economy rose by 59,444 from the previous month, less than half the increase in January, to 5.04 million, the Labor Ministry in Madrid said in an e-mailed statement.

Spanish 10-year bond yields dropped less than one basis point to 5.09 percent, after falling as much as six basis points. The Iberian nation is scheduled to sell bonds maturing in two-, five- and 10-years on March 7.

Germany’s 10-year bund yielded 1.42 percent after declining to 1.39 percent, the lowest level in more than eight weeks. The difference in yield, or spread, between Italian 10-year yields and their German equivalents, widened eight basis points to 346 basis points. It increased to 351 basis points on Feb. 27, the most since Dec. 11.

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

The rate on Dutch two-year notes was little changed at 0.14 percent after the Netherlands sold treasury bills maturing in 86 and 208 days at minus 0.021 percent and minus 0.014 percent respectively. A negative yield means investors who hold the security until it matures will receive less than they paid to buy it.

Italian bonds handed investors a loss of 0.5 percent this year through March 1, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish securities gained 2.8 percent, while German bunds dropped 0.3 percent.

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