Bloomberg News

Spanish, Italian Bonds Drop as Crisis-Fighting Divisions Persist

June 22, 2012

Italian and Spanish bonds fell, paring weekly gains, as German ChancellorAngela Merkel prepared for a summit in Rome amid concern she will block proposals to use the euro-area bailout facilities to buy sovereign debt.

German 10-year bunds rose a second day after a report showed the nation’s business confidence fell to the lowest level in more than two-years in June. Luxembourg Prime Minister Jean- Claude Juncker said loans to Spain to help fund its banks will start from Europe’s temporary rescue facility before being transferred to the permanent fund once it’s set up. Merkel meets today with Italian Prime Minister Mario Monti, Spanish Prime Minister Mariano Rajoy and French President Francois Hollande.

“Over the past couple of days there has been a lot of optimism, and now investors are taking a more cautious stance,” said Michael Leister, a rates strategist at DZ Bank AG in Frankfurt. “The southern European countries are supporting the idea of the rescue fund buying bonds, but there’s a risk that the northern countries will resist such a plan. Spreads relative to bunds are widening.”

Spanish 10-year yields climbed seven basis points, or 0.07 percentage point, to 6.68 percent at 9:55 a.m. London time, paring a weekly drop to 20 basis points. The 5.85 percent security due January 2022 declined 0.465, or 4.65 euros per 1,000 euro ($1,254) face amount, to 94.22.

The rate on Italian 10-year bonds jumped nine basis points to 5.84 percent, increasing the extra yield investors demand to hold the securities over similar-maturity German bunds, Europe’s benchmark debt securities, by 11 basis points to 432 basis points. The bund yield fell one basis point to 1.52 percent.

Rome Summit

The Rome gathering today precedes a euro-area leaders’ summit on June 28-29, which will decide on the setup of the Spanish rescue package.

Euro-area officials need to come up with a blueprint for a tighter fiscal and financial union at next week’s summit or there will “be progressively greater speculative attacks” on the currency bloc’s “weaker” nations, Monti told newspapers. The International Monetary Fund said nations must make a “strong commitment” to the euro to stop a plunge in investor confidence.

The Munich-based Ifo institute said today its business climate index, based on a survey of 7,000 executives, dropped for a second straight month, to 105.3 from 106.9 in May. That’s the lowest reading since March 2010. A separate report showed Italian household confidence fell to a record low this month as unemployment rose.

Bond Returns

German debt has returned 2.6 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Gains were fueled by investors seeking a haven within the euro bloc as the more than two-year- old debt crisis deepened in Spain and Italy. Spanish securities have lost 5.1 percent this year, even as Italian bonds earned 8.5 percent.

Bunds fell this week, the third straight weekly drop, amid speculation euro-area leaders will deploy their bailout facilities to purchase sovereign debt. The Germany yield climbed to 1.64 percent two days ago, the highest since May 3. The two- year note yield increased three basis points this week to 0.10 percent, after it tumbled to a minus 0.012 percent on June 1.

To contact the reporters on this story: Lucy Meakin in London at; Emma Charlton in London at

To contact the editor responsible for this story: Daniel Tilles at

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