Portuguese government bonds led declines by securities from the euro-region's most indebted nations amid concern demand at auctions next week may flag.
Italian 10-year bonds fell, driving the extra yield investors demand to hold the securities instead of similar- maturity German bunds to the highest in more than a month.
The European Union proposed yesterday that bank regulators be granted powers to write down debt in future crises. Belgian debt dropped amid a political impasse. German notes slipped before a report that may show the US added jobs in December.
"Auctions next week will be the first primary market test," said Kornelius Purps, a fixed-income strategist at UniCredit SpA in Munich. "There is no fresh buyer interest. This is weighing on the periphery."
The yield on Portuguese 10-year bonds jumped 18 basis points, after a 27 basis-point increase yesterday, to 7.36 per cent at 11:43 am in London. The 4.8 per cent security maturing in June 2020 fell 1.09, or €10.90 per €1,000 ($1,298) face amount, to 82.97. The yield is up 67 basis points since December 30th.
The cost of insuring against default on European government debt, measured by the Markit iTraxx SovX Western Europe Index, increased one basis point to a record 214. Contracts on Portugal rose nine basis points to 534, the highest level since November 30th, according to CMA. Spain increased 7 basis points to 355.5, Italy climbed 10 to 252, and Belgium reached a record 249.
Portugal is trying to convince investors it can narrow its budget gap after Europe's debt crisis led to a surge in bond yields and forced Greece and Ireland to accept EU bailouts last year. Prime Minster Jose Socrates said today tax revenue in 2010 was higher than the government expected and state spending was lower than forecast.
The nation's deficit was 9.3 per cent in 2009, the fourth highest in the then 16-nation currency union.
European Central Bank President Jean-Claude Trichet said today that central-bank measures can't be relied on to make up for government irresponsibility, calling for more fiscal reform.
The ECB bought Portuguese government debt today, according to two people with knowledge of the transactions. A spokesman for the central bank in Frankfurt declined to comment.
The bank's government bond purchase program is "ongoing," Trichet said today.
Portugal's borrowing costs surged at a six-month bill sale this week. The nation plans to auction bonds maturing in 2014 and 2020 next week, with Spanish and Italian sales also planned.
Bloomberg
