Italian Bonds Decline With Stocks as Banking Concerns Build

  • Ten-year yield spread to German bunds is widest in a month
  • German, French securities halt advance as nations sell debt

Italian government bonds fell, pushing the 10-year yield premium over German debt to the highest in almost a month, as a decline in stocks damped demand for higher-yielding assets and amid growing concern the nation’s banks are hurting the economy.

Spanish 10-year bonds, also among the euro-area’s higher-yielding securities, slipped for the first time in more than a week. European Central Bank Supervisory Board member Ignazio Angeloni told the Italian Senate on Tuesday that the nation’s high level of non-performing loans is weighing not only on banks but the economy.

“Appetite for risk assets globally remains fragile and the decline in European peripheral bonds today is part of that story,” said Nick Stamenkovic, a rates strategist at broker RIA Capital Markets Ltd. in Edinburgh. “Concern about the Italian banking sector is weighing on Italian bonds.”

Soured loans have weighed on euro-area banks and hampered lending activities that the ECB sought to promote when it cut interest rates to unprecedented low levels in an effort to boost the economy. Crippled banks can potentially be a fiscal hazard, and therefore bad for sovereign bonds, because of the risk the government may have to bail them out.

Relative Performance

Italy’s securities led a decline in lower-rated European government securities in the past month with a 1.2 percent loss, amid declines across so-called peripheral debt, Bloomberg World Bond Indexes show. Investors have said the European Central Bank’s ability to prop up bond markets with its asset-purchase program may be waning.

As the ECB increased its monthly bond purchases in April, the yield on Spain’s 10-year securities climbed the most since it jumped a quarter percentage point in December.

Italy’s 10-year bond yield climbed four basis points, or 0.04 percentage point, to 1.49 percent as of 4:08 p.m. in London. The 2 percent security due in December 2025 fell 0.315, or 3.15 euros per 1,000-euro ($1,148) face amount, to 104.58. Yields rose 27 basis points in April, the most since June. The Stoxx Europe 600 stocks index dropped 0.8 percent.

Spanish Yields

Spanish 10-year bond yields rose three basis points to 1.59 percent. Similar-maturity German and French 10-year bonds halted a two-day advance as the nations auctioned about 12 billion euros of sovereign securities.

German 10-year bund yields were little changed at 0.21 percent, having falling seven basis points on Tuesday. The extra yield that investors demand for holding Italian securities over German debt, Europe’s benchmark government bonds, widened three basis points to 1.28 percentage points, and earlier reached 1.31 percentage points, the most since April 7.

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