German Bunds Fall as Italian and Spanish Debt Rise

“German government bonds slumped, with 10-year yields rising the most in more than three months, after U.S. lawmakers passed a bill undoing income tax increases threatening growth in the world’s largest economy.

Finnish and Dutch securities also fell as investors shunned refuge assets even though Republicans vowed to fight President Barack Obama for spending cuts in exchange for raising the debt ceiling. Italian bonds rallied, with 10-year yields dropping to the lowest since December 2010, as the tax deal spurred demand for higher-yielding securities. Germany sold 4.15 billion euros ($5.5 billion) of two-year notes, with the sale resulting in a positive yield for the first time since October.

“The compromise on the U.S. fiscal cliff is dominating risk sentiment,” said Rainer Guntermann, a fixed-income strategist at Commerzbank AG in Frankfurt. “It’s a pro-risk environment and bund yields should correct a bit higher.”

Germany’s 10-year yield rose 11 basis points, or 0.11 percentage point, to 1.43 percent at 10:38 a.m. London time after climbing as much as 12 basis points, the biggest increase since Sept. 14. The 1.5 percent bond due September 2022 declined 1.005, or 10.05 euros per 1,000-euro face amount, to 100.655.

The U.S. House of Representatives voted in favor of the Senate’s budget legislation as Republican lawmakers abandoned efforts to add spending cuts to the bill, removing an impediment to growth. The 257-167 bipartisan vote breaks a yearlong impasse over how to head off $600 billion in tax increases and spending cuts set to start taking effect yesterday….”