Italy’s Bond Yields Touch Four-Month High as Debt Supply Weighs

  • Germany and Portugal auction five-year sovereign securities
  • Supply comes a day after Austria sold 70-year bonds via banks

Italian bonds led a decline among euro-area securities as a glut of supply from governments and companies weighed on fixed-income markets.

Italy’s 10-year yield climbed to the highest since June after the country sold inflation-linked debt due in 2024 and 2026. The selloff deepened, with similar-maturity U.K. bond yields approaching the most since the Brexit vote, after the Bank of England said Tuesday there were limits to officials’ willingness to look beyond an overshoot of their inflation target. Gilts also declined after Britain sold 4 billion pounds ($4.9 billion) of securities due in July 2065 via banks on Tuesday.

Portugal auctioned bonds for the first time since DBRS Ltd. maintained the nation’s credit rating as investment grade, securing eligibility of its debt for the European Central Bank’s asset-purchase program. Germany added to the weight of supply, selling 3 billion euros ($3.3 billion) of five-year notes, while companies including Merck & Co. and Verizon Communications Inc. sold bonds. The Treasury in Rome plans to auction as much as 8.5 billion euros of debt on Oct. 28.

“Gilts are leading us down, they’re underperforming, taking Europe as a whole after that,” said Craig Collins, managing director of rates trading at Bank of Montreal in London. U.K. bonds are vulnerable after Tuesday’s debt sale as well as “concerns about BOE policy,” he said, while the supply from euro-zone nations is “adding to the mix.”

Italy’s 10-year bond yields climbed nine basis points, or 0.09 percentage point, to 1.48 percent as of 4:04 p.m. London time, the highest since June 28. The 1.6 percent bond due in June 2026 fell 0.84, or 8.40 euros per 1,000-euro face amount, to 101.15. Benchmark German 10-year bund yields rose seven basis points to 0.1 percent.

Gilts Slide

Yields on U.K. 10-year gilts increased eight basis points to 1.17 percent. The yield touched 1.22 percent on Oct. 17, the highest since the June 23 Brexit referendum. Portugal’s 10-year bond yield added three basis points to 3.22 percent.

The auctions Wednesday came a day after Austria joined the club of countries to have issued ultra-long-maturity bonds when it sold 2 billion euros of 70-year securities via banks. The nation also placed 3 billion euros of notes maturing in July 2023. The Austrian central bank retained 500 million euros of both securities.

“You have the perfect environment for a selloff,” said Martin van Vliet, an interest-rate strategist at ING Groep NV in Amsterdam. “First, you had this strong spillover from the gilts market. We also had some supply pressure with quite a lot of auctions.”

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