Italy’s Bonds Climb With Spain’s as Stocks Advance; Bunds Slide

Italian and Spanish government bonds rose for the first time in three days as a recovery in stocks boosted demand for the euro region’s higher-yielding assets.

German bunds fell for a second day as demand for safer investments waned. Austria’s bonds were little changed after the nation auctioned a total of 1.43 billion euros ($1.87 billion) of debt maturing in 2017 and 2023 today. The European Central Bank will this week keep its main interest rate at a record-low 0.5 percent, according to all except two of 59 economists in a Bloomberg News survey before the announcement on June 6.

“The market is risk-seeking,” said Marchel Alexandrovich, a senior European economist at Jefferies International Ltd. in London. “Gains in Italian and Spanish debt are being driven by liquidity that’s also driving up stocks.”

Italy’s 10-year yield fell six basis points, or 0.06 percentage point, to 4.10 percent at 4:38 p.m. London time after climbing to 4.23 percent yesterday, the highest level since April 19. The 4.5 percent bond due in May 2023 rose 0.47, or 4.70 euros per 1,000-euro face amount, to 103.55.

The yield on similar-maturity Spanish debt declined five basis points to 4.43 percent and the rate on Portuguese 10-year securities dropped 10 basis points to 5.71 percent.

Germany’s 10-year yield increased two basis points to 1.54 percent after climbing to as much as 1.57 percent yesterday, the highest since Feb. 25.

‘Dovish Comments’

“German bund yields are driven higher more by gains in stocks and news from the U.S., rather than domestic news,” said Peter Chatwell, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “There are still a lot of troubles in the euro zone. I expect German yields to stabilize around these levels in the near term as the market anticipates dovish comments from the ECB.”

Further declines in German bonds may be limited before a report tomorrow that economists said will show the 17-nation euro-area economy contracted in the first quarter. Gross domestic product of the region shrank 0.2 percent in the three-months through March, according the median of 40 estimates in a Bloomberg News survey.

The Stoxx Europe 600 Index climbed 0.3 percent, rebounding from a one-month low, after Federal Reserve Bank of Atlanta President Dennis Lockhart said the U.S. central bank is committed to its stimulus program.

‘Choppy’ Surveys

Euro-area contraction in the first quarter and “choppy” business surveys will lead to lower ECB projections for growth and inflation, Greg Fuzesi, economist at JPMorgan Chase & Co. in London wrote in a note to clients.

The ECB will probably revise its 2013 forecast to 0.7 percent contraction from a 0.5 percent decline forecast in March, the bank said. It predicts the central bank’s inflation rate estimate for 2013 will be revised down to 1.4 percent from 1.6 percent previously.

Italian and Spanish bonds have been supported since ECB President Mario Draghi said in July he would do whatever it takes to safeguard the euro and followed that with a pledge to buy government bonds of countries that ask for assistance. The ECB cut its main refinancing rate to a record last month.

Spain’s 10-year yield has dropped more than 3 percentage points since climbing to a euro-era record of 7.75 percent on July 25, the day before Draghi made his pledge. Italy’s has fallen more than 2.5 percentage points.

Spain’s registered unemployment declined in May, lending support to the government’s prediction of an economic recovery this year. The number of people registering for jobless benefits fell by 98,265 from April to 4.89 million, the Labor Ministry in Madrid said in an e-mailed statement.

Austria sold 715 million euros of bonds due in 2023 at an average yield of 1.903 percent, up from an all-time low of 1.621 percent at the previous auction on May 7. The securities yielded 1.91 percent today.

Spanish bonds returned 6.3 percent this year through yesterday, according to the Bloomberg Spain Sovereign Bond Index. Italian securities earned 3.8 percent, while German bonds handed investors a loss of 0.8 percent, separate indexes show.

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