Italian bonds fell, pushing yields toward euro-era highs, as the nation sold 7.5 billion euros ($10 billion) of debt at average yields above the 7 percent level that forced Greece, Ireland and Portugal to seek bailouts.
Ten-year Italian bonds dropped for the sixth time in seven days as the Rome-based Treasury auctioned 2014 notes at 7.89 percent, 2020 debt at 7.28 percent and 2022 securities at 7.56 percent. Belgian bonds rose for a second day even as the nation paid the most in three years to sell six-month bills. German 10-year yields were within four basis points of a three-month high before European finance ministers meet in Brussels to discuss the debt crisis.
"The problem is that Italy is issuing debt at just shy of 8 percent and if yields don't come down in the medium term then obviously things could get pretty difficult," said Huw Worthington, a fixed-income strategist at Barclays Capital in London. "Today's auction itself was pretty good, it shows there's demand out there."
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Italy's 10-year yield climbed nine basis points, or 0.09 percentage point, to 7.32 percent at 12:38 p.m. London time, approaching the euro-era high of 7.483 percent reached Nov. 11. The 4.75 percent bond due September 2021 fell 0.515, or 5.15 euros per 1,000-euro face amount, to 82.095.
Two-year rates rose two basis points to 7.13 percent, after increasing as much as 26 basis points.
The Treasury sold 3.5 billion euros of a new three-year note, 2.5 billion euros of 2022 securities and 1.5 billion euros in 2020 bonds, less than its maximum target of a combined 8 billion euros.
Italy's 10-year yield has climbed more than one percentage point this month and 2.5 percentage points this year amid concern the nation's debt load — bigger than that of Greece, Spain, Ireland and Portugal combined — is unsustainable.
"The problem is that the yields they are selling at are prohibitively high and that's not going to change until the nation presents its budget and reform plans," said Marc Ostwald, a fixed-income strategist at Monument Securities Ltd. in London. "You really need yields to go back below 7 percent to make them sustainable for Italy."
Italy's two-year yield climbed to a euro-era record of 8.12 percent yesterday as the nation sold 567 million euros of inflation-linked notes.
ECB Buying
The European Central Bank began buying Italian and Spanish debt on Aug. 8, according to traders who saw the transactions, as it sought to contain a surge in financing costs. After bond yields in the two countries fell to around 5 percent that week, they climbed above 6.5 percent this month amid speculation the nations won't be able to repay their debts.
The ECB said today it failed to fully offset the extra liquidity created by its bond-purchase program. Banks bid for a total of 194.2 billion euros for seven-day term deposits, less than the 203.5 billion euros the debt purchases have created since May last year, the central bank said.
Belgium's 10-year yields fell 12 basis points to 5.45 percent after declining 29 basis points yesterday. Two-year rates dropped 38 basis points to 4.19 percent.
The debt agency in Brussels said it sold 502 million euros of three-month securities at an average yield of 2.185 percent, compared with 1.575 percent at the previous auction on Nov. 15. Investors submitted bids for 5.61 times the amount on offer, up from 1.45 times two weeks ago.
Belgium also sold 513 million euros of six-month debt at an average yield of 2.438 percent, versus 1.086 percent at the prior auction on Nov. 8.
Germany's 10-year yield was little changed at 2.30 percent, after rising to 2.34 percent yesterday, the highest level since Aug. 16. Two-year rates were unchanged at 0.45 percent.
The Stoxx Europe 600 Index gained 0.5 percent and the euro strengthened 0.2 percent to $1.3352.
"The fact that Italy can still finance itself, even if it is at elevated levels, provides some relief to the market," said Eric Wand, a fixed-income strategist at Lloyds Bank Corporate Markets in London.
Finance ministers from the 17-member monetary union meet today to debate using their bailout fund, the European Financial Stability Facility, to insure sovereign debt with guarantees.
German government bonds have returned 6.3 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Italian bonds lost 11 percent.
Bloomberg News
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