Italian bonds rise as Merkel praises effort


ITALIAN GOVERNMENT bonds rose yesterday, with two-year yields falling to the lowest in three months, as German chancellor Angela Merkel praised Italy’s prime minister Mario Monti’s effort to overhaul his country’s finances.

Italian securities also advanced after the nation’s borrowing costs dropped to the least since March at a bill auction before it sells as much as €7.5 billion of five- and 10-year bonds today.

German bunds declined after a US report showed the world’s biggest economy expanded more than previously estimated last quarter, damping demand for safer assets.

“Encouraging comments by Merkel on the Italian reforms might have helped” the country’s bonds, said Annalisa Piazza, a fixed-income analyst at Newedge Group in London.

“Markets seem to price in a less risky scenario for the Italian debt as the government’s efforts to implement structural reforms have been widely praised.”

The Italian two-year yield fell 10 basis points, or 0.1 percentage point, to 2.94 per cent after dropping to 2.88 per cent, matching the lowest level since May 8th.

The 4.25 per cent bond due in July 2014 rose 0.175, or €1.75 per €1,000 face amount, to 102.34.

Spanish two-year yields declined seven basis points to 3.61 per cent after rising as much as 17 basis points.

The Rome-based treasury auctioned 181-day bills at a yield of 1.585 per cent, compared with 2.454 per cent at the previous sale of similar-maturity debt on July 27th. Investors submitted bids for 1.69 times the amount of bills offered.

Ms Merkel said euro-area policy makers faced “a very ambitious agenda in the next few weeks” and needed to improve their co-operation in the months ahead

“We are convinced that the path we’ve chosen is the right one,” she said. – (Bloomberg)