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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