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Spanish and Italian Bonds Fall as Traders Bet Risk Off

“Spanish and Italian bonds led losses among the securities of Europe’s so-called peripheral nations as Chinese manufacturing and euro-area services and factory output all contracted, sapping demand for higher-yielding assets.

Spanish five-year note yields rose the most in a month as the nation’s borrowing costs increased at a sale of 4.08 billion euros ($5.26 billion) of government debt maturing in 2016, 2018 and 2026. Italian 10-year yields climbed to a one-week high. Benchmark German bunds advanced as a report showed output in the euro area’s manufacturing and services industries shrank for a 16th month in May. Japan’s Topix index tumbled the most since the aftermath of the March 2011 tsunami.

“There’s a bit of a reduction in risk appetite following the big moves down in Japanese equities, so it’s more the macro theme,” said Peter Chatwell, a senior fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “Of course, we’ve got the supply factors also. Bunds have managed to trade a lot higher today.”

Spain’s 10-year yield rose seven basis points, or 0.07 percentage point, to 4.25 percent at noon London time after reaching 4.27 percent, the most since May 17. The 5.4 percent bond due in January 2023 fell 0.56, or 5.60 euros per 1,000-euro face amount, to 108.965.

The rate on Italian 10-year bonds increased eight basis points to 3.99 percent.

Output Contracts…”

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