Bunds Climb, Italian, Spanish Bonds Drop After U.S. ISM Data

Bunds rose while Italian and Spanish bonds dropped as an index of U.S. manufacturing fell more than forecast, fueling concern there will be a slowdown in the world’s largest economy and boosting demand for safer assets.

German government bond yields slumped to the lowest level since November amid speculation that the U.S. will lose its top credit rating, even after a deal was struck to raise the nation’s debt ceiling.

Both Europe and the U.S. seem to be mired in weak growth.

Ten-year bund yields dropped six basis points to 2.48 percent at 4:22 p.m. in London, after earlier rising six basis points to 2.59 percent. The 3.25 percent security maturing in July 2021 rose 0.565, or 5.65 euros per 1,000-euro ($1,422) face amount, to 106.720. Yields on two-year notes were also five basis points lower, at 1.11 percent.


Italian, Spanish Spreads

The yield on 10-year Italian bonds rose 14 basis points to 6.01 percent, reversing an earlier decline and approaching the 6.027 percent euro-era record reached on July 18, before the latest bailout for Greece was announced.

Yields on 10-year Spanish debt climbed 11 basis points to 6.19 percent, after dropping to 5.95 percent before the U.S. data was released. The Spanish-German yield spread widened to 372 basis points.



Credit-Default Swaps

Spain and Italy led an increase in the cost of insuring European sovereign debt. Credit-default swaps on Spain jumped nine basis points to 374, approaching the record 385 set last month, according to CMA. Italy climbed seven to 323, nearing an all-time high of 331.

Swaps on Greece, Portugal, Ireland and Belgium also rose, pushing the Markit iTraxx SovX Western Europe Index of swaps on 15 governments up 5 basis points to 276.

France auctioned 8.5 billion euro of 84-, 175- and 357-day bills. The Netherlands sold 2.46 billion euros of three-month bills at an average yield of 0.9 percent, six-month bills at 1 percent and nine-month bills at 1.105 percent.

German government bonds handed investors 3 percent this year, compared with 4.3 percent for U.S. Treasuries, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish bonds have lost 0.2 percent, while Italian debt has slipped 3.5 percent and Portugal’s has declined 22 percent, the indexes show.