German Bund Yields Approach 2-Month High Before Italian Auction

German government bond yields headed for the highest close in more than two months before Italy sells as much as 3 billion euros ($4.1 billion) of zero-coupon securities due in December 2015 today.

Benchmark 10-year bund yields were set for their first annual increase since 2009 as an easing of Europe’s sovereign debt crisis damped demand for the safest fixed-income assets. Italy, whose bonds have rallied as the financial turmoil abated, last sold zero-coupon two-year notes on Nov. 26 at an average yield of 1.163 percent, compared with an average yield of 1.586 percent this year.

German 10-year yields rose two basis points, or 0.02 percentage point, from Dec. 23, to 1.91 percent at 7:36 a.m. London time. That would be the highest closing yield since Oct. 16. The rate is up from 1.32 percent on Dec. 31, 2012.

Ten-year bund yields will climb to 2.25 percent by the end of 2014, according to the median estimate of 16 economists and strategists in a Bloomberg News survey. Forecasts range from 1.90 percent to 2.80 percent.

German bonds lost 1.8 percent this year, the worst performer of 15 euro-area debt markets tracked by Bloomberg World Bond Indexes. Italy’s earned 7.1 percent and Spain’s returned 11 percent.

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