Bloomberg News

Italian, Spanish Bonds Advance After Auctions; German Bunds Fall

January 12, 2012

Jan. 12 (Bloomberg) -- Italian and Spanish bonds rose after borrowing costs for the two nations declined at auctions today and European Central Bank President Mario Draghi said there were signs of stabilization in economic activity.

Italy’s two-year yields fell to the lowest since September as the nation sold 12-month bills at a yield of 2.735 percent, down from 5.952 percent at the previous auction. Spanish two- year rates fell to the least since March after the nation raised 9.98 billion euros ($12.7 billion) from a note auction, twice the maximum target. German 10-year bunds pared losses after a U.S. report showed retail sales rose less than economists forecast, boosting safety demand.

“The carry trade, with banks borrowing from the ECB and then investing in short-term government notes, will continue to be supportive for Spanish and Italian” debt, said Alessandro Giansanti, an Amsterdam-based senior rates strategist at ING Groep NV.

Italy’s two-year yields tumbled 46 basis points, or 0.46 percentage point, to 4.26 percent at 5 p.m. London time after sliding to 3.98 percent, the lowest since Sept. 9. The 2.25 percent note due November 2013 climbed 0.745, or 7.45 euros per 1,000-euro face amount, to 96.65. The 10-year yield dropped 35 basis points to 6.63 percent.

Spain’s two-year yield fell 13 basis points to 2.96 percent after slipping to 2.84 percent, the least since March 18.

Italy’s Treasury, which raised 12 billion euros from today’s sales, will auction debt due in 2014 and 2018 tomorrow. Spain sold a new benchmark three-year note at an average yield of 3.384 percent today, down from 5.187 percent at the previous offering on Dec. 1.

‘Very Strong’

“The auction was very strong, a good start to the year for Spain,” said Annalisa Piazza, a fixed-income analyst at Newedge Group in London. “People are starting to believe that something can be sorted out with the debt crisis. For the moment at least they are trying to make some money out of it.”

The gain in Italy’s 10-year bonds narrowed the yield gap over German securities by 37 basis points to 480 basis points. The Spanish-German yield spread narrowed 21 basis points to 330 basis points.

Germany’s two-year yield rose two basis points to 0.16 percent after dropping to match its record low of 0.134 percent. The rate on benchmark 10-year bunds advanced two basis points to 1.84 percent.

ECB President Mario Draghi said there were signs of stabilization in the economy, even as there remain “substantial downside risks” to the growth outlook.

Retail Sales

U.S. retail sales rose 0.1 percent in December after a 0.4 percent advance in November that was more than initially reported, the Commerce Department said today. Economists forecast a 0.3 percent increase in December, according to a Bloomberg News survey. Jobless claims climbed by 24,000 to 399,000 in the week ended Jan. 7, the Labor Department said.

German debt has handed investors a 0.1 percent return this year, after gaining 9.7 percent in 2011, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Italian bonds have lost 0.1 percent, and Spanish debt fell 0.9 percent.

French two-year note yields dropped to the lowest since May 2010 after David Riley, head of the sovereign-debt unit at Fitch Ratings, said the nation is “not a crisis country.”

Consumer prices in France rose 2.7 percent in December from a year earlier, based on European Union methodology, matching the rate in November. Economists in a Bloomberg survey had forecast a 2.5 percent increase.

The French two-year yield dropped 12 basis points to 0.67 percent, after dropping to 0.614 percent. The 10-year yield fell 12 basis points to 3.04 percent.

Greek Notes

Greek two-year notes declined after the Institute of International Finance said time to reach an agreement on the nation’s debt swap is “running short.”

Charles Dallara and Jean Lemierre, co-chairs of the steering committee of the private creditor-investor committee for Greece, met today in Athens with Prime Minister Lucas Papademos and Finance Minister Evangelos Venizelos to discuss the voluntary private-sector involvement, the IIF said in an e- mailed statement.

The Greek two-year yield climbed 3.26 percentage points to 170.15 percent, with the price at 22 percent of face value.

--Editors: Nicholas Reynolds, Daniel Tilles

To contact the reporters on this story: Lucy Meakin in London at lmeakin1@bloomberg.net; Lukanyo Mnyanda in Johannesburg at lmnyanda@bloomberg.net

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


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