German Bunds Gain on Weidmann Comments; Italy Bonds Rise on Sale

German bunds rose, with two-year yields dropping below zero, after Bundesbank President Jens Weidmann was reported by Dow Jones as saying the European Central Bank may cut interest rates if data warrants.

The nation’s 10-year yield dropped the most in three weeks as European stocks extended this month’s slide, boosting demand for safer assets. Italian bonds gained, with 10-year yields falling to the lowest level in seven weeks, as investors submitted orders for more than 17 billion euros ($22.2 billion) at a retail debt sale. Slovenia’s bonds surged after it sold more than double its target at an auction of 18-month bills.

“It’s a combination of the Weidmann comments and a general risk-off move in equities,” said Owen Callan, an analyst at Danske Bank A/S in Dublin. “There’s a lot of uncertainty and bunds have got a boost. The demand for the Italian retail bonds showed there is a large amount of private wealth in that country, which can be harnessed. It’s a good sign they could close the sale early.”

Germany’s two-year yield fell two basis points, or 0.02 percentage point, to 0.007 percent at 4:46 p.m. London time after falling to minus 0.001 percent, the lowest level since April 5. The 0.25 percent note due in March 2015 rose 0.04, or 40 euro cents per 1,000-euro face amount, to 100.46.

The 10-year bund yield dropped five basis points to 1.23 percent, the biggest decline since March 27.

Bunds rallied as Weidmann’s comments suggested policy makers may lower the ECB’s main refinancing rate from 0.75 percent as soon as its next meeting on May 2.

German Auction

German securities also gained as borrowing costs dropped to a record when the nation auctioned an additional 3.35 billion euros of 10-year debt. It sold the securities at an average yield of 1.28 percent, below the previous record of 1.31 percent set on July 11.

The Stoxx Europe 600 Index of shares dropped 1.5 percent, extending this month’s slide to 3.4 percent.

Italy’s benchmark bonds advanced for a second day after the demand from retail investors prompted the Treasury to close the offering of inflation-linked notes two days early.

Investors ordered 8.07 billion euros of the four-year Italian bonds being sold to individuals yesterday, after requesting 8.98 billion euros on April 15. The two-day amount was near the 18 billion-euro record gained over four days at the previous sale in October.

‘Good Demand’

“Italy got the size they needed,” said Peter Chatwell, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “It increases the perception that there’s good demand for Italian paper.”

The Italian 10-year yield fell seven basis points to 4.25 percent after dropping to 4.21 percent, the lowest level since Feb. 25.

The decline took yields to the lowest since the second day of voting in the nation’s February elections, when inconclusive results prompted an increase in borrowing costs. Italian lawmakers will begin the election of a new president on April 18 as the legislature seeks to end a political impasse.

Spanish bonds also gained, with the five-year yield dropping seven basis points to 3.33 percent after falling to 3.29 percent, the lowest level since November 2010.

Slovenia, the fourth-smallest economy in the euro area, sold 1.1 billion euros of 18-month bills, compared with a target of 500 million euros. The nation missed its goal at a bill auction last week.

The yield on Slovenian bonds due in October 2022 fell 37 basis points to 5.94 percent.

Portugal’s borrowing costs increased as it sold 1.5 billion euros of 12-month bills. The securities due in April 2014 were issued at an average yield of 1.394 percent, compared with 1.277 percent at a previous auction on Feb. 20. The debt agency also sold 250 million euros of three-month bills.

German bonds returned 0.6 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Italian bonds gained 2.1 percent and Spain’s rose 5 percent.

Before it's here, it's on the Bloomberg Terminal.