Bloomberg News

Italian Bonds Fall Sixth Week; Spanish Yields Surge on Contagion

November 20, 2011

Nov. 19 (Bloomberg) -- Italian bonds fell a sixth straight week and debt from Finland to the Netherlands dropped relative to German bunds as European Central Bank purchases of sovereign securities failed to stem the spread of the debt crisis.

Spanish borrowing costs surged to the most in at least seven years as the nation failed to sell the maximum amount of 10-year bonds on offer at an auction. Kokusai Asset Management Co.’s Global Sovereign Open, Japan’s biggest mutual fund, said it sold its entire holdings of Italian government bonds by Nov. 10. German Chancellor Angela Merkel rejected French calls to deploy the ECB as a crisis backstop.

“This has been the worst week of the European sovereign debt crisis,” Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, said in an interview with Bloomberg’s Ken Prewitt on Bloomberg Radio’s “Bloomberg -- The First Word.” “The contagion is spreading like wildfire. There are no real private buyers for Italian and Spanish debt.”

The yield on 10-year Italian bonds climbed 19 basis points, or 0.19 percentage point, to 6.63 percent at 4:39 p.m. London time yesterday, from 6.45 percent a week earlier. The price of the 4.75 percent securities maturing in September 2021 fell to 87.29 cents on the euro, from 88.46.

The bonds of to-rated nations also fell versus bunds. The difference in yield between French and German 10-year securities widened to as much as 204 basis points, the most since before the euro was created in 1999, before tightening to 150 basis points, little changed on the week. The Finland-Germany spread increased to 65 basis points from 53 basis points and the Dutch spread to bunds climbed to 55 basis points from 47.

Spanish Auction

Spain sold the bonds to yield 6.975 percent on Nov. 17, up from 5.433 percent when it sold 10-year bonds on Oct. 20. That’s the highest rate at an auction since at least September 2004. The government sold 3.56 billion euros ($4.8 billion) of debt, compared with a maximum target of 4 billion euros.

The ECB was said by people with knowledge of the transactions to buy Spanish bonds yesterday and the day before also said to have purchased Italian debt every day this week. The central bank declined to comment when contacted by Bloomberg.

German bonds may rise on Nov. 23 before a report that economists estimate will show a contraction in euro-area manufacturing and services output accelerated in November. Markit Economics will say its composite index based on a survey of purchasing managers in both industries fell to 46.1 from 46.5 in October, according to the median of 17 economist estimates in a Bloomberg News survey.

German bunds returned 8.3 percent this year through Nov. 17, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish debt handed investors a 1.9 percent loss, while Italian securities lost 8.8 percent.

--Editors: Matthew Brown, Daniel Tilles

To contact the reporter on this story: Paul Dobson in London at pdobson2@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net


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