Italian, Spanish Bonds Decline a Third Day on Austerity Concern

Italian and Spanish government bonds dropped for a third day amid concern euro-area politicians will struggle to control their debt loads after rejecting austerity plans to concentrate on boosting growth.

German bunds rose, with 10-year yields falling from within a basis point of a seven-week high, before data this week that analysts said will show the euro-area’s gross domestic product contracted for a sixth consecutive quarter. Former European Central Bank board member Lorenzo Bini Smaghi said Italy should seek aid to support its lenders, according to a report by Ansa. The nation auctioned 8 billion euros ($10.4 billion) of debt.

“The market is rethinking the very optimistic view” that had pushed Italian and Spanish yields lower, said Christian Reicherter, an analyst at DZ Bank AG in Frankfurt. “Bond markets are also nervous ahead of the GDP data. The politicians are still struggling to come up with further reforms of the European economy as a whole.”

Italy’s 10-year yield rose nine basis points, or 0.09 percentage point, to 3.98 percent at 4:45 p.m. London time, the highest level since April 29. The 4.5 percent bond maturing in May 2023 fell 0.7, or 7 euros per 1,000-euro face amount, to 104.575. The nation’s two-year yield climbed eight basis points to 1.36 percent.

Finance ministers and central bankers from the common currency bloc left weekend talks of the Group of Seven signaling that they’re poised to scale back austerity, are open to increased monetary aid and are looking to unfreeze bank lending. European officials will meet in Brussels today to discuss the economy and review aid payments for crisis-struck nations from Greece to Spain.

Italian Sales

Euro-region GDP shrank 0.1 percent in the first quarter, after contracting 0.6 percent in the previous three months, the European Union’s statistics office in Luxembourg will say May 15, according to the median estimate of 39 economists in a Bloomberg News survey.

The Rome-based Treasury sold three-year securities at an average yield of 1.92 percent, compared with 2.29 percent at a previous sale on April 11. Investors bid for 1.34 times the amount of securities on offer, versus 1.4 times. Italy also allotted 1.5 billion euros of bonds due in 2026 at 4.07 percent as well as 3 billion euros of five-year floating-rate notes at 2.44 percent.

Germany’s 10-year bund yield dropped two basis points to 1.36 percent. The rate rose to 1.39 percent on May 10, the highest since March 25.

Spread Widens

The extra yield, or spread, investors demand to hold Italian 10-year securities instead of German bunds expanded 11 basis points to 262 basis points today, after shrinking to 250 basis points on May 10, the narrowest since Jan. 30.

Spanish 10-year yields climbed nine basis points to 4.29 percent.

Belgium’s bonds were the most volatile in euro-area markets today followed by those of Finland and Spain, according to measures of 10-year debt, the yield spread between two- and 10-year securities, and credit-default swaps.

Italian securities returned 0.3 percent this month through May 10, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish bonds were little changed and German debt lost 1 percent.

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