Bloomberg News

Spanish, Italian Bonds Drop Before Finance Ministers Meet

July 09, 2012

Spanish 10-year bonds fell, pushing the yield to more than 7 percent, amid concern euro-area finance ministers meeting in Brussels will fail to agree to sufficient crisis-fighting measures to stem the region’s economic woes.

Italian securities slipped for the fourth day, sending the 10-year yield to the highest in more than a week. German two- year note yields dropped below zero for a second day as the government sold six-month bills at a record-low yield of minus 0.0344 percent, while France auctioned similar-maturity debt at at a negative yield for the first time. Spanish 30-year bond rates advanced to a euro-era record.

“The market doesn’t have great expectations of the summit,” said Achilleas Georgolopoulos, a fixed-income strategist at Lloyds Banking Group Plc in London. “That continues to put pressure on peripheral bonds.”

The Spanish 10-year yield rose 11 basis points, or 0.11 percentage point, to 7.06 percent at 4:32 p.m. London time, after touching 7.11 percent, the highest since June 19 and approaching the euro-era record of 7.285 percent reached on June 18. The 5.85 percent bond due January 2022 fell 0.7, or 7 euros per 1,000-euro ($1,230) face amount, to 91.725. Spanish 30-year bond yields were three basis points higher at 7.29 percent, after rising to a euro-era record 7.327 percent.

The rate on 10-year Italian debt climbed eight basis points to 6.11 percent and reached 6.18 percent, the highest since June 28.

The euro was little changed at $1.2300, after falling 3 percent last week, the biggest weekly decline since September. It slid to as low as $1.2251 today, the weakest level since July 2010.

‘Move Quickly’

European finance ministers are gathering today to discuss crisis measures adopted by heads of government at a summit last month, when they agreed to relax conditions on emergency loans for Spanish banks.

“I think the market is doubting the will of politicians,” said Lyn Graham-Taylor, a fixed-income strategist at Rabobank International in London. “It’s easy to make broad-brush statements, but actually to implement this stuff is pretty difficult.”

Germany sold 3.29 billion euros of six-month bills at a record-low yield of minus 0.0344 percent, according to a statement from the Bundesbank today. That’s less than a yield of 0.007 percent at the previous auction of similar-maturity debt on June 11.

The German two-year yield was little changed at zero after falling to minus 0.013 percent, approaching a record of minus 0.018 percent reached on July 6. The 10-year bund yield was at 1.33 percent.

Italian Volatility

Volatility on Austria’s government debt was the second- highest in developed markets behind Belgium today, according to measures of 10-year bonds, the spread between two- and 10-year securities, and credit-default swaps. Its two-year note yield fell two basis points to 0.16 percent.

Italy’s two-year yield rose 28 basis points to 4.14 percent and Spanish two-year rates increased nine basis points to 5.02 percent.

France sold 1.99 billion euros of six-month bills at a yield of minus 0.006 percent, the first time the nation agreed to a negative rate on the securities since Bloomberg began collecting the data in 1999.

French five-year yields fell to 1 percent for the first time before climbing back to 1.04 percent.

German government bonds returned 1.5 percent this month, extending this year’s gain to 3.6 percent, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish securities lost 2.6 percent in July, bringing this year’s decline to 6.1 percent, the indexes showed.

The German 10-year rate may decline toward its record-low 1.127 percent, set on June 1, as it maintains a break below its 50-day moving average at 1.445 percent, according to data compiled by Bloomberg.

To contact the reporters on this story: David Goodman in London at dgoodman28@bloomberg.net; Keith Jenkins in London at kjenkins3@bloomberg.net

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


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