Italian and Spanish bonds led declines among Europe’s higher-yielding government securities amid concern the regional debt crisis is worsening.
Italy’s 10-year yields climbed for a second day after a government report showed industrial orders fell more than economists forecast and the Finance Ministry said debt-servicing costs will increase. French bonds dropped after Citigroup Inc. said it expects the nation’s credit rating to be cut over the next two to three years. German bunds advanced as investors sought the safest assets. Spain and France both raised the amounts they targeted at debt auctions today.
“There is a quite significant widening” of Italian and Spanish yields relative to German bunds, said Peter Schaffrik, head of European interest-rate strategy at Royal Bank of Canada in London. “Those two economies have low growth and widening budgets. For euro-investors bunds are the natural safe haven.”
The Italian 10-year bond yield rose 11 basis points, or 0.11 percentage point, to 5.59 percent at 4:18 p.m. London time. The 5 percent bond maturing in March 2022 fell 0.795, or 7.95 euros per 1,000-euro ($1,312) face amount, to 96.10.
The extra yield investors demand to hold the securities instead of German bunds expanded 14 basis points to 390 basis points, after reaching 409 basis points on April 11, the widest since Feb. 16.
Spain’s 10-year yield advanced eight basis points to 5.91 percent, increasing the spread over bunds by 11 basis points to 421 basis points.
Italy’s debt-servicing costs will rise to 5.3 percent of gross domestic product this year from 4.9 percent in 2011, according to the government’s economic and financial plan posted on the Finance Ministry’s website today. Debt-servicing costs are forecast to increase to 5.4 percent next year and to 5.6 percent in 2014, the plan showed.
Scrutiny of Europe’s high deficit nations is increasing as the boost from the European Central Bank’s longer-term refinancing operations fades. Spain’s 10-year yield has jumped almost 1 percentage point since the end of February, while the yield on the equivalent Italian security has increased about 40 basis points.
France’s 10-year yield rose to the highest level in 12 weeks after Citigroup said the country’s credit rating will probably be lowered by one level over the next two to three years regardless of who wins the presidential election.
Fiscal deficits in all peripheral euro-region countries may overshoot official estimates in 2012 and 2013, Citigroup’s London-based economist Michael Saunders wrote in the note to investors.
The French 10-year yield rose eight basis points to 3.08 percent after increasing to 3.12 percent, the highest level since Jan. 26. The spread with German bunds widened to as much as 143 basis points, the most since Jan. 10.
French credit risk is at the highest in three months on concern anti-business policies will be adopted after the presidential election as Europe’s debt crisis deepens. The first round of voting in the election takes place on April 22.
Credit-default swaps on Credit Agricole SA (ACA), the nation’s third-largest lender, rose yesterday while France Telecom SA (FTE) led an increase in corporate default risk.
German 10-year bund yields dropped three basis points to 1.7 percent. The 10-year bund futures contract expiring in June climbed 0.1 percent to 140.56, after reaching 140.78, the highest level since the introduction of the euro in 1999.
Spain and France sold 13.05 billion euros in debt today, with both countries raising their targeted amount even as borrowing costs increased.
Spain sold 2.54 billion euros of two- and 10-year securities, and France raised 10.5 billion euros versus its 11 billion-euro goal. Spain auctioned its 10-year benchmark at a yield of 5.743 percent, compared with 5.403 percent when it last sold the bonds on Jan. 19. France’s five-year notes had an average yield of 1.83 percent, up from 1.78 percent on March 15.
“It was a reasonable set of auctions, they got a shade more than they anticipated, but it did come at a price as evidenced by the higher” borrowing costs, said Richard McGuire, a senior fixed-income strategist at Rabobank International in London. “The path of least resistance is for peripheral markets such as Spain to come under renewed pressure irrespective of whether we get one or two positive auction results.”
Volatility in Swedish government securities was the highest among 24 global debt markets, according to measures of 10-year bonds, two- and 10-year yield spreads and credit-default swaps compiled by Bloomberg. French volatility was the highest among euro-area nations.
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