Italian government bonds fell, pushing the yield on benchmark 10-year securities to more than 7 per cent, as the nation prepares to auction as much as EUR20 billion (US$26.2 billion) of debt in the next two days.
German debt rose, pushing the rate on two-year notes to less than 0.2 per cent for the first time since Bloomberg began collecting the data in 1990, as investors sought the safest European fixed-income assets. Italy will sell EUR9 billion of 179-day bills and as much as EUR2.5 billion of zero-coupon notes due in 2013 on Wednesday. It will auction as much as EUR8.5 billion of bonds due between 2014 and 2022 on December 29.
“The auction will be quite a big event,” said Alessandro Giansanti, a senior rates strategist at ING Groep NV in Amsterdam. “It will continue to drive Italian yields higher and will have an effect on bunds with a flight to quality.”
The yield on 10-year Italian bonds climbed 12 basis points to 7.10 per cent at 8:48 am London time. The 5-per cent securities maturing in March 2022 fell 0.780, or EUR7.80 per EUR1,000-face amount, to 85.725.
The additional yield investors demand to hold the benchmark Italian securities instead of German bunds widened to as much as 520 basis points, or 5.2 percentage points, the most since November 17.
The yield on two-year German notes dropped five basis points to 0.18 per cent after reaching a record-low 0.158 per cent.
German government bonds have handed investors a profit of 8.9 per cent this year, according to indexes compiled by the European Federation of Financial Analysts Societies and Bloomberg. Italian debt lost 5.9 per cent, the indexes show.