“Italy’s bonds rose for a second day amid speculation the winner of the nation’s parliamentary election will maintain austerity measures imposed to stem financial turmoil in the euro area’s third-largest economy.
Italian two-year securities fell as the country sold 2.82 billion euros ($3.73 billion) of zero-coupon notes due 2014 as well as inflation-linked bonds due in 2021 and 2026. Pier Luigi Bersani will probably gain a majority in the 630-seat lower house, according to polls published Feb. 8. Challengers include former Premier Silvio Berlusconi, incumbent Mario Monti and Beppe Grillo. Benchmark German bunds were little changed.
We are expecting a rainbow coalition outcome that doesn’t include Berlusconi and that would be acceptable for the market,” said Padhraic Garvey, head of developed-market debt strategy at ING Groep NV in Amsterdam. “Fundamentally, Italy is in decent shape and as long as we don’t see any divergence from the Monti policies then yields can come down.”
Italy’s 10-year yield dropped three basis points, or 0.03 percentage point, to 4.41 percent as of 10:44 a.m. London time. It earlier fell as much as seven basis points to 4.38 percent. The 5.5 percent bond due in November 2022 rose 0.27, or 2.70 euros per 1,000-euro face amount, to 108.87.
The rate on two-year notes climbed three basis points to 1.70 percent, extending last week’s nine-basis point increase.
Initial estimates of the election result are due after 3 p.m. inRome, when the second day of balloting ends.
Yield Spread
Italy’s 10-year yield difference over similar-maturity bunds may narrow as much as 75 basis points if a center-left coalition is formed, Goldman Sachs Group Inc. strategists Francesco Garzarelli and Silvia Ardagna wrote in a note to clients yesterday. The so-called spread fell three basis points to 284 basis points today….”
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