Italy Bonds Rise 2nd Day Before Senate Vote; French Debt Climbs

By Paul Dobson - Nov 11, 2011 3:58 PM GMT+0700

Italian bonds climbed for a second day before the nation’s Senate votes on debt-reduction measures designed to shore up investor confidence and pave the way for a new government in the region’s third-biggest economy.

French securities rose, outperforming benchmark German debt, after Standard & Poor’s corrected an erroneous message to subscribers yesterday suggesting the nation’s AAA credit rating had been lowered. Confidence in euro-region bond markets will return, said Klaus Regling, head of the European Financial Stability Facility rescue fund, the Financial Times reported yesterday, citing a news conference. Greece formed a unity government led by Lucas Papademos.

“Progress in the formation of new governments in Italy and Greece could support optimism,” fixed-income strategists at UniCredit SpA led by Michael Rottmann in Munich, wrote in an investor note today. “However, uncertainty remains high as French and Austrian spreads are trading at historical highs.”

The yield on 10-year Italian bonds declined 29 basis points to 6.60 percent after dropping 36 basis points yesterday. The price of the 4.75 percent securities maturing in September 2021 advanced 1.805, or 18.05 euros per 1,000-euro ($1,365) face amount, to 87.490.

The difference in yield, or spread, between Italian 10-year bonds and German debt of similar maturity narrowed 31 basis points to 480 basis points. The French-German spread tightened eight basis points to 161 basis points, after reaching a euro- era record 170 basis points yesterday.

Ten-year German bund yields rose two basis points to 1.80 percent. The rate on similar-maturity Spanish securities dropped seven basis points to 5.80 percent.

German bunds have returned 8.9 percent this year, compared with 8.8 percent on U.S. Treasuries, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Italian bonds have lost 9.3 percent.

To contact the reporter on this story: Paul Dobson in London at pdobson2@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net