Italian Bonds Fall as Production Declines; Germany’s Bunds Drop

Italian government bonds fell after reports showing industrial production declined in April and the economy shrank more than initially reported in the first quarter undermined demand for the nation’s assets.

Italy’s 10-year yields climbed toward the highest level since April as the data added to concern the country’s recession is deepening. Spain’s bonds slid after El Pais reported that the nation may be given more time to tap funds for its banking bailout program. German 10-year bunds dropped, pushing yields to the highest in more than three months.

“There seems to be some negative reaction in Italy after the data,” said Gianluca Ziglio, executive director of fixed-income research at Sunrise Brokers LLP in London. “The data was actually quite bad and that’s putting some pressure on the bonds.”

Italy’s 10-year yield rose 10 basis points, or 0.1 percentage point, to 4.30 percent at 4:36 p.m. London time after increasing to 4.39 percent on June 6, the highest since April 5. The 4.5 percent bond due in May 2023 declined 0.83, or 8.30 euros per 1,000-euro ($1,318) face amount, to 101.985.

Italian industrial production fell 0.3 percent in April, after dropping 0.9 percent in March, the National Statistics Institute said in Rome. Gross domestic product declined 0.6 percent from the previous three months, more than the 0.5 percent first reported on May 15, Istat said.

Spanish Bonds

Euro-area government securities declined last week following European Central Bank President Mario Draghi’s comments that the economy will return to growth, reducing the need for more stimulus.

Spain’s 10-year yield added five basis points to 4.60 percent after climbing 11 basis points last week. The extra yield investors demand to hold the Spanish bonds instead of similar-maturity Italian debt narrowed six basis points to 30 basis points

“The data are stabilizing on a very low level,” said Morten Hassing Povlsen, a senior rates analyst at Nordea Bank AB in Copenhagen. “All improvements are being taken positively. Spanish bonds should remain supported. They will attract investors who think the selloff has been too rapid.”

The ECB and International Monetary Fund are proposing extending a Dec. 31 deadline for Spain to access funds for its banking bailout plan to create a safety net in case more capital is needed, El Pais reported, citing a senior ECB official that it didn’t name. Spain has so far taken 41.3 billion euros from the 100 billion euro facility and has ruled out taking more, the Spanish newspaper reported.

German Bets

German bunds fell, with the 10-year yield rising four basis points to 1.59 percent, the highest since Feb. 25.

Investors should buy the securities and bet yields will drop to 1.40 percent amid demand for the safest assets, BNP Paribas SA strategists led by Patrick Jacq in Paris wrote in a research report published today.

“The 10-year bund is very attractive at current levels,” the strategists wrote.

German securities handed investors a loss of 0.9 percent this year through June 7, according to the Bloomberg Germany Sovereign Bond Index. Spanish bonds returned 5.9 percent and while Italian debt climbed 3.5 percent, separate indexes showed.

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