Italian yields rise on weak data, bond sale, EU criticism

Italy's 10-year government bond yields have pulled back from 3-1/2 week lows. — Reuters pic
Italy's 10-year government bond yields have pulled back from 3-1/2 week lows. — Reuters pic

LONDON, Feb 27 — Italian government bonds led a rise in peripheral yields today, pushed higher by disappointing economic data, a debt auction and criticism from the European Commission over the state of Italy's economy.

After an initial dip in early trade, Italian government bond yields rose up to five basis points across the curve with analysts citing renewed concerns about the country's economy.

Morale among Italian manufacturers fell to its lowest level in almost three years and consumer sentiment also declined in February after the economy dipped into recession at the end of last year.

The European Commission said Italy's economy was facing excessive imbalances and policies of its government were making matters worse and also posed a threat to other euro zone countries.

The drop in confidence translated into higher borrowing costs for the country in a sale of new debt today.

The yield on a new 10-year benchmark BTP bond due on Aug. 1, 2029 came in at 2.81 per cent, its highest since November, up from a 2.60 per cent yield paid last month on the previous 10-year benchmark.

"It is a combination of these things that has weakened the BTP market a bit," said Peter Chatwell, rates strategist at Mizuho. "We think it is just a bit of a stumbling block but something the market is likely to get over."

Italy's 10-year government bond yields were last up three basis points to 2.74 per cent, having pulled back from 3-1/2 week lows hit today.

It's two- and five- year bond yields were as much as four basis points higher at 0.39 and 1.67 per cent respectively.

This pushed Italy's 10-year bond yield spread over top-rated Germany to 262 basis points after it touched its tightest in three weeks at 255 basis points earlier in the session.

Spanish government bond yields held close to more than two-year lows earlier today after a storming 15-year bond sale, with progress in trade talks supporting demand for riskier assets.

Syndications from euro zone sovereigns have been hugely successful this year and with orders in excess of €44 billion (RM203.7 billion), Spain's €5 billion sale of 15-year bonds on Tuesday was no exception.

Spain's outstanding 10-year bond yield dropped to a 28-month low of 1.126 per cent after the sale, holding near to that level on Wednesday and pulling Italian and Portuguese equivalents lower too.

Further supply is expected from the periphery, with Greece considering a bond sale next month, its second since emerging from international bailout programmes last August.

Greek 10-year government bond yields fell to new one-year lows and were last down nearly 1 basis point at 3.72 per cent .

Core euro zone bond yields were largely unchanged in early trade with Germany's 10-year government bond yield, the benchmark for the region, last at 0.115 per cent. — Reuters

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