Italian government bonds rose, with two-year yields falling to the lowest in three months, as German Chancellor Angela Merkel praised Italy’s Prime Minister Mario Monti’s effort to overhaul his country’s finances.
Italian securities also advanced after the nation’s borrowing costs dropped to the least since March at a bill auction before it sells as much as 7.5 billion euros ($9.4 billion) of five- and 10-year bonds tomorrow. German bunds declined after a U.S. report showed the world’s biggest economy expanded more than previously estimated last quarter, damping demand for safer assets.
“Encouraging comments by Merkel on the Italian reforms might have helped” the country’s bonds, said Annalisa Piazza, a fixed-income analyst at Newedge Group in London. Demand should be “relatively solid at tomorrow’s auction. Markets seem to price in a less risky scenario for the Italian debt as the government’s efforts to implement structural reforms have been widely praised.”
The Italian two-year yield fell 10 basis points, or 0.1 percentage point, to 2.94 percent at 5 p.m. London time after dropping to 2.88 percent, matching the lowest level since May 8. The 4.25 percent bond due in July 2014 rose 0.175, or 1.75 euros per 1,000-euro face amount, to 102.34.
Spanish two-year yields declined seven basis points to 3.61 percent after rising as much as 17 basis points.
The Rome-based Treasury auctioned the 181-day bills at a yield of 1.585 percent, compared with 2.454 percent at the previous sale of similar-maturity debt on July 27. Investors submitted bids for 1.69 times the amount of bills offered, up from 1.61 times last month.
Merkel said euro-area policy makers face “a very ambitious agenda in the next few weeks” and need to improve their cooperation in the months ahead. “We are convinced that the path we’ve chosen is the right one,” she said.
Efforts to stamp out the debt crisis now in its third year have intensified as Europe’s political summer break recedes. French President Francois Hollande visited Berlin last week to coordinate a strategy with Merkel on conditions for extending Greece’s bailout. Merkel is due to meet Spanish Prime Minister Mariano Rajoy in Madrid on Sept. 6.
German 10-year bunds dropped for the first time in six days, with yields rising four basis points to 1.38 percent. They earlier fell to 1.30 percent, the lowest level since Aug. 3.
U.S. gross domestic product climbed at a 1.7 percent annual rate from April through June, up from an initial estimate of 1.5 percent, revised Commerce Department figures showed today. The figure followed a 2 percent first-quarter pace.
The European Financial Stability Facility sold 3 billion euros of bonds due in September 2022 at a yield of 2.307 percent today, 57 basis points above the mid-swap rate. Finland auctioned 4 billion euros of 10-year bonds yesterday at three basis points above the mid-swap rate. Belgium, Austria, Germany, France and Spain are all due to sell securities next week.
Volatility on French government bonds was the highest in euro-region markets today, followed by the Belgium and Germany, according to measures of 10-year bonds, the spread between two-and 10-year securities, and credit-default swaps.
German government securities returned 3.9 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Italian bonds rose 11 percent and Spain’s fell 2.6 percent.
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