Italian Bonds Advance Amid Attempts to End Political Deadlock

By Emma Charlton & Lukanyo Mnyanda

Italian bonds advanced, pushing 10- year yields down from the highest level in four weeks, as President Giorgio Napolitano sought to end a political stalemate and start negotiations on a new government.

Spain’s securities also rose as the number of people registering for jobless benefits fell, fueling optimism the economy is stabilizing. German 10-year bonds pared declines as Cypriot Finance Minister Michael Sarris resigned. The Netherlands sold 1.27 billion euros ($1.63 billion) of three- month bills at a negative yield. Italy has had a political deadlock since February when theDemocratic Party led by Pier Luigi Bersani fell short of winning both houses of parliament.

“Italian bonds are a bit more underpinned,” said Orlando Green, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “Maybe there’s hope that there can be an end to this impasse. We need to hear something more conciliatory from Bersani in terms of potentially forming a government. That seems to be the key.

Italy’s 10-year yield fell 12 basis points, or 0.12percentage point, to 4.65 percent at 2:50 p.m. London time after climbing to 4.86 percent on March 28, the highest level since March 5. The 5.5 percent bond due in November 2022 rose 0.895, or 8.95 euros per 1,000-euro face amount, to 106.94.

Napolitano said yesterday he would hold meetings today in Rome with a 10-person committee of advisers, including members of the coalitions headed by Bersani and ex-Prime Minister Silvio Berlusconi. The committee will have to overcome “irreconcilable positions” among the political blocs, Napolitano said on March 30 as he appointed the advisers to carry on the search for common ground.

Italy Deadlock

Italy’s government bonds fell last quarter, snapping two quarters of gains, as the deadlock arising from the Feb. 24-25 election fueled concern that efforts to fix the nation’s debt crisis would be derailed.

Spain’s 10-year yield dropped the most in more than a week as a job report spurred optimism the outlook for the euro region’s fourth-largest economy is improving.

The number of people in Spain registering for jobless benefits fell by 4,979 from February to 5.04 million, the Labor Ministry said in Madrid. The unemployment rate surged to a record 26 percent in the fourth quarter, the national statistics agency INE reported on Jan. 24.

Spain’s 10-year yield dropped 10 basis points to 4.96 percent, the most since March 21.

Bunds Decline

German bunds fell for a second day as signs the euro-area outlook is improving sapped demand for the region’s safest securities.

They trimmed losses after Sarris told reporters in Nicosia that he resigned due to a committee set up today to investigate the reasons that led to Cyprus’s economic crisis. Sarris has served as chairman of Cyprus Popular Bank Pcl (CPB) which has been shut as part of the financial rescue.

German 10-year yields increased two basis points to 1.31 percent after rising by as much as three basis points. The yield fell to 1.25 percent on March 28, the lowest since Aug. 3.

“You do have these bursts of risk aversion and this of course is weighing on markets but longer term we do expect bund yields to head higher again and normalize,” said Rasmus Rousing, a fixed-income strategist at Credit Suisse Group AG in Zurich. “We are monitoring what’s happening on the data side.”

Cyprus agreed last month to impose losses on uninsured depositors at the country’s two biggest banks, Bank of Cyprus Plc and Cyprus Popular Bank in return for 10 billion euros in international aid from the International Monetary Fund, the European Central Bank and the European Union.

Bill Sales

The Netherlands sold 85-day bills at a yield of minus 0.025 percent, along with 1.32 billion euros of 270-day securities at zero percent. France and Belgium also auctioned bills. A negative yield means investors who hold the security until it matures will receive less than they paid to buy it.

Volatility on Irish bonds was the highest in euro-area markets today followed by those of Spain and Portugal, according to measures of 10-year debt, the yield spread between two- and 10-year securities, and credit-default swaps.

Italian bonds have returned 8.7 percent over the past year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish securities gained 8.1 percent, while German bonds rose 4.6 percent.

To contact the reporters on this story: Emma Charlton in London at echarlton1@bloomberg.net; Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net

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