Italian Bonds Decline After Borrowing Costs Rise

Italian bonds fell for a second day, increasing the yield spread over German bunds, after the nation’s borrowing costs rose at a sale of 10-year debt and Standard & Poor’s said Greece risks further defaults.

Italy’s 10-year yield surged to the most in more than a week amid speculation a probe into a former aide of Finance Minister Giulio Tremonti may force him to step down. German yields fell to a five-month low versus their U.S. counterparts as American lawmakers pushed conflicting plans to raise the nation’s debt ceiling. S&P also said lower borrowing costs for Ireland and Portugal may boost their debt sustainability.

“The negative picture developed after the auction and we see spreads widening,” said Norbert Aul, a European rates strategist at RBC Capital Markets in London. “The auction looked good. The problem is the fragility in the market. Tremonti basically personifies investor confidence.”

Italian 10-year bond yields rose 21 basis points to 5.97 percent as of 1:14 p.m. in London. The 4.75 percent security due September 2021 fell 1.435, or 14.35 euros per 1,000-euro face amount, to 91.495. That pushed the difference in yield, or spread, to 10-year German bonds 26 basis points wider to 337, the most since July 18.

Ten-year bund yields slipped five basis points to 2.61 percent, pushing the difference in yield, or spread, with 10- year Treasuries to 36 basis points, the most since Feb. 21.

Bloomberg

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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell