Bloomberg News

Italian, Spanish Bonds Rise After U.S. Jobless Claims Decline

November 01, 2012

Italian and Spanish government bonds advanced after a U.S. report showed fewer Americans filed for unemployment benefits last week than economists forecast, spurring demand for higher-yielding assets.

Italy’s 10-year securities climbed for a third day after a separate report showed manufacturing in the U.S. unexpectedly accelerated last month. U.S. employers hired 125,000 workers in October, up from 114,000 in September, according to a Bloomberg News survey before tomorrow’s Labor-Department report. German bunds were little changed ahead of data tomorrow that economists said will confirm euro-region manufacturing shrank in October.

“The U.S. data was better than expected,” said Nicola Marinelli, who oversees $160 million at Glendevon King in London. “Credit risk is continuing to be bought. The market is very quiet, looking ahead to tomorrow’s U.S. payrolls data. Expectations are not high so if we get a better number the market may rally.”

Italy’s 10-year yield fell three basis points, or 0.03 percentage point, to 4.93 percent at 5 p.m. London time. The 5.5 percent bond due in November 2022 rose 0.24, or 2.40 euros per 1,000-euro ($1,293) face amount, to 104.925. The Spanish 10-year yield dropped three basis points to 5.59 percent.

Applications for jobless benefits in the U.S. fell 9,000 to 363,000 in the week ended Oct. 27, the least in three weeks, the Labor Department said in Washington. Economists forecast 370,000, according to a Bloomberg survey. The Institute for Supply Management’s U.S. factory index climbed to 51.7 in October from 51.5 a month earlier, group said today.

German Bunds

Germany’s 10-year bund yield was little changed at 1.46 percent after falling to 1.44 percent on Oct. 30, the lowest level since Oct. 4.

A gauge of euro-area manufacturing dropped to 45.3 last month from 46.1 in September, according to a separate Bloomberg survey. A reading below 50 indicates a contraction.

Spanish 10-year yields have fallen 44 basis points since Sept. 6, when European Central Bank President Mario Draghi said he would back the Europe’s rescue fund with unlimited bond- buying for countries in distress in return for conditions.

Spanish Prime Minister Mariano Rajoy justified his delay yesterday in response to criticism in Parliament by saying “sometimes the hardest decision is not to take any decision.”

‘More Involved’

“The market is reluctant to renew its risk-averse mood because the ECB may get more involved,” said Orlando Green, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “The ongoing question is will Spain ask for a bailout. The market is caught between a rock and a hard place.”

Volatility on Greek bonds was the highest among euro-area markets today, followed by those of Finland, according to measures of 10-year debt, the spread between two-and 10-year securities, and credit default swaps.

Greece’s 10-year bond yield climbed 40 basis points 18.17 percent after increasing to 18.27 percent, the highest level since Oct. 12. The price dropped to 30.36 percent of face value.

Efforts to rescue Greece have failed to provide the basic structural reforms needed to help bring competitiveness to its economy, said John Lipsky, the International Monetary Fund’s former first deputy managing director.

“It has been frustrating because some of these have been clear from the outset in so many ways,” Lipsky said in an interview in Copenhagen yesterday. “This process could have been handled so much better.”

German bonds returned 3.3 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish securities gained 3.2 percent, while Italy’s earned 17 percent.

To contact the reporters on this story: Emma Charlton in London at echarlton1@bloomberg.net; Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net


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