Italian Bonds Rise After Output Report; Slovenia Securities Gain

Italy’s government bonds rose for a second day as a survey of purchasing managers showed euro-area manufacturing and services grew more in December than economists forecast, boosting demand for higher-yielding assets.

The nation’s securities also advanced after the country repaid more than 20 billion euros ($27.5 billion) to investors from a note maturing yesterday. German bunds were little changed as investors weighed the prospect of the Federal Reserve reducing asset purchases as soon as its meeting this week. Slovenian notes rose for a fifth day after after JPMorgan Chase & Co. recommended investors buy the securities.

“The higher-than-expected flash December PMI survey has helped peripheral bonds,” said Nick Stamenkovic, fixed-income strategist at broker RIA Capital Markets Ltd. in Edinburgh. “The rise in the headline index suggests that sentiment in peripheral countries increased modestly last month, supportive for Italian bonds.”

Italy’s 10-year yield fell five basis points, or 0.05 percentage point, to 4.05 percent at 4:39 p.m. London time. The 4.5 percent bond due in March 2024 rose 0.37, or 3.70 euros per 1,000-euro face amount, to 104.10. The rate dropped to 4.03 percent on Nov. 29, the lowest since May 28.

Similar-maturity Spanish yields declined three basis points to 4.07 percent.

Output Climbs

A composite gauge of output in the 17-nation bloc, based on a survey of purchasing managers, rose to 52.1 from 51.7 in November, London-based Markit Economics said. The median estimate of analysts in a Bloomberg News survey was for an increase to 51.9. A reading above 50 indicates expansion.

The Italian Treasury, which last month canceled a bond sale that was scheduled for Dec. 12, bought back 3.99 billion euros of debt maturing between 2014 and 2017 on Dec. 10. The securities that expired yesterday were first auctioned in January 2009.

“There were large redemptions” which may have supported Italian bonds, said Gianluca Ziglio, executive director of fixed-income research at Sunrise Brokers LLP in London.

The Fed buys $85 billion of Treasury and mortgage debt a month to support the U.S. economy by putting downward pressure on borrowing costs. Federal Open Market Committee officials begin a two-day policy meeting tomorrow.

Policy makers are considering reducing their debt purchases “in coming months” if the economy improves as they expect, minutes of the central bank’s previous session released in November showed.

Fed Tapering

“We mostly have our eyes on the Fed this week,” said Allan von Mehren, chief analyst at Danske Bank A/S in Copenhagen. “We expect them to start tapering on Wednesday. This could put some upward pressure on bond yields.”

Germany’s two-year yield increased one basis point to 0.25 percent after rising to 0.26 percent on Dec. 13, the highest since Sept. 11. The 10-year bund yielded 1.83 percent after the rate fell to 1.81 percent, the lowest since Dec. 5.

The yield on Slovenia’s bonds due in February 2019 fell to the lowest in 11 months after a report last week showed the nation’s ailing banks needed less cash to shore up their balance sheets than was set aside by the government. The stress tests removed a significant amount of uncertainty about the nation, JPMorgan strategists Gianluca Salford and Alan Bowe in London wrote in a note today.

The rate slipped 22 basis points to 4.21 percent, the lowest since Jan. 14, based on closing-price data.

Bond Movers

Volatility on Italian bonds was the highest in the euro-area today, followed by those of Greece and Ireland, according to measures of 10-year debt, the yield spread between two- and 10-year securities and credit-default swaps.

Irish bonds were little changed after the nation yesterday became the first country to leave an aid program and fully return to sovereign-debt markets since the euro region’s crisis began in 2009. Finance Minister Michael Noonan chose to do so without the safety net of a precautionary credit line or access to the ECB’s bond-buying program.

Ireland’s 10-year bond yield was at 3.47 percent, down from a euro-era high 14.22 percent set in July 2011.

German bonds lost 1.7 percent this year through Dec. 13, the worst performer of 15 euro-area debt markets tracked by Bloomberg World Bond Indexes. Spain’s returned 11 percent and Italy’s earned 7.5 percent.

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