Bloomberg News

Italian Bonds Gain Amid Optimism Cyprus Will Reach Bailout Deal

March 22, 2013

Italian and Spanish bonds advanced for a third day amid signs Cyprus is moving closer to an agreement that will help it win an international bailout.

Italian securities extended a weekly gain as Averof Neofytou, deputy president of Cyprus’s ruling Disy party, said lawmakers will reach a deal in the next few hours. The bonds of so-called peripheral nations slid at the start of this week as Cyprus sought an unprecedented tax on bank deposits, threatening to reignite Europe’s debt crisis. Benchmark German 10-year bunds fell, pushing the yield up from an 11-week low.

“The market is treating the dip on Monday and Tuesday after the Cyprus fallout as a buying opportunity,” said Michael Leister, an interest-rates analyst at Commerzbank AG in London. “In the current environment it’s unlikely we’ll continue these moves in a straight line but if we manage to get an agreement in Cyprus over the weekend then there’s further room for Spain and Italy to perform.”

Italian 10-year bond yields fell seven basis points, or 0.07 percentage point, to 4.52 percent at 4:59 p.m. London time, headed for a weekly drop of eight basis points. The 5.5 percent securities maturing in November 2022 rose 0.565, or 5.65 euros per 1,000-euro ($1,299) face amount, to 107.985.

Spanish 10-year yields declined three basis points to 4.85 percent, after falling 16 basis points over the past two days.

Italian bonds stayed higher after the nation’s President Giorgio Napolitano asked Democratic Party leader Pier Luigi Bersani to try to form a government, a month after inconclusive elections.

Cyprus Deadlock

Cyprus is seeking to overcome a deadlock after lawmakers rejected a 5.8 billion-euro levy on bank deposits imposed by the European Union as a condition for a 10 billion-euro rescue. The European Central Bank said it will cut emergency funds to banks in the Mediterranean nation on March 25 unless a bailout program with the EU and International Monetary Fund is in place.

“The political dimension in the complexity of the situation in Cyprus is increasingly on the market’s radar screens,” said Elwin de Groot, a market economist at Rabobank Nederland in Utrecht, the Netherlands. “It seems we’re in for a volatile ride today and this perhaps extending into next week.”

Germany’s 10-year bunds rose earlier as a report showed business confidence unexpectedly declined in March. The 10-year yield added one basis point to 1.38 percent, after falling to 1.34 percent, the lowest since Jan. 2.

Business Sentiment

The Ifo institute in Munich said its business climate index, based on a survey of 7,000 executives, fell to 106.7 from 107.4 in February. Economists predicted an increase to 107.8, according to the median of 42 forecasts in a Bloomberg survey.

Austria’s 10-year bond yield rose two basis points to 1.68 percent, after falling to 1.634 percent, the least since Bloomberg began compiling the data in 1993.

Volatility on Finnish bonds was the highest in euro-area markets today, followed by those of Italy and Austria, according to measures of 10-year debt, the yield spread between two- and 10-year securities, and credit-default swaps.

Italian bonds have handed investors a return of 8 percent in the 12 months through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish securities gained 9 percent and German bunds earned 5.4 percent.

To contact the reporters on this story: Lucy Meakin in London at lmeakin1@bloomberg.net; David Goodman in London at dgoodman28@bloomberg.net

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


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