Italian bonds slump as Monti flags exit
Italian government bonds slumped, with the 10-year yield climbing by the most since August, after Prime Minister Mario Monti said he would resign as he has lost support in Parliament.
Two-year yields jumped to the highest level since September as former Prime Minister Silvio Berlusconi and his allies withdrew support for Monti's government, threatening to derail passage of the 2013 budget. Italy is due to sell bonds and bills this week. Spanish securities also dropped while French, Belgian and Austrian 10-year yields fell to euro-era lows. Greek bonds advanced as the country extended the deadline for a buyback of its debt.
“We are seeing a selloff but I wouldn't call it a panic yet,” said Elwin de Groot, a senior economist at Rabobank Nederland in Utrecht, Netherlands. “The auction this week could be an interesting litmus test for investors. This has also created uncertainty for Europe-wide policy making.”
Italy's 10-year yield rose 29 basis points, or 0.29 per centage point, to 4.82 per cent at 4:22 p.m. London time after climbing as much as 38 basis points, the most since Aug. 2. The 5.5 per cent bond due in November 2022 fell 2.36, or 23.60 euros per 1,000-euro ($US1,293) face amount, to 105.75.
The two-year yield gained 33 basis points to 2.31 per cent after rising to 2.47 per cent, the highest since Sept. 27.
Volatility on Italian bonds was the highest in euro-region markets, followed by those of Ireland and Belgium, according to measures of 10-year or equivalent-maturity debt, the spread between two- and 10-year securities, and credit default swaps.
Monti said Dec. 8 he will resign due to parliamentary opposition from Berlusconi and his allies, who had previously backed his government. The former prime minister said the same day he will seek the premiership in next year's election and criticized his successor's “German-centric” austerity program. Monti is undecided whether to run for a second term, la Repubblica said today, citing a telephone call with the premier.
Italian 10-year yields have dropped from their high of 7.48 per cent reached in November 2011 as Monti's government implemented austerity to put the country on track to bring its deficit within the European Union's limit of 3 per cent of gross domestic product this year.
German 10-year yields were little changed at 1.30 per cent after dropping to 1.26 per cent, the lowest level since Aug. 3.
Two-year yields were at minus 0.075 per cent after declining to negative 0.092 per cent, approaching the record minus 0.097 per cent set Aug. 2. A negative yield means investors who hold the security until it matures will receive less than they paid to buy it.
French 10-year yields dropped to a euro-era record 1.916 per cent, before being little changed at 1.95 per cent. Belgium's 10-year rate fell to an all-time low 2.06 per cent and Austria's slid to as little as 1.67 per cent.
Germany's bunds, the region's safest securities, gained even as report showed the nation's exports unexpectedly increased in October.
German bonds returned 4.3 per cent this year through last week, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spain's debt gained 4.7 per cent and Italy's earned 20 per cent.