Italian and Spanish 10-year bonds dropped, pushing yields up to euro-era records versus benchmark German bunds, on concern that slowing growth will hamper efforts to tame the nations’ debt loads. German bonds rose, driving the 10-year yield to an eight- month low, amid speculation spending cuts included in a U.S. debt-limit compromise agreement will harm global economic growth. European producer-price inflation slowed to 5.9 percent in June from 6.2 percent in May, according to the median of 20 estimates in a Bloomberg News survey before the data. “This has all the features of a self-fulfilling crisis,” said Harvinder Sian, a senior bond strategist at Royal Bank of Scotland Plc in London. “The rise in yields looks pretty relentless, and it doesn’t look as if the politicians are anywhere near to getting ahead of the curve.” The yield on 10-year Italian bonds jumped 18 basis points to 6.18 percent as of 8:48 a.m. in London, the most since November 1997. The 4.75 percent security maturity in September 2021 fell 1.21, or 12.1 euros per 1,000-euro ($1,420) face amount, to 90.025. That increased the difference in yield, or spread, over bunds, to 374 basis points, the most since before the euro was introduced in 1999. Spanish Yield ‘Risks’ Spanish 10-year yields surged 16 basis points to 6.36 percent, pushing the spread over similar-maturity German debt up 19 basis points to 393 basis points. A 6.5 percent yield will be a key level for Spain, RBS’s Sian said. “Anything materially above that risks an acceleration like we saw for Greece, Ireland and Portugal,” he said. “The political willingness to backstop the European Union is now what the market needs.” The euro slid 0.4 percent to $1.4191, while the Swiss franc, a traditional haven in times of financial turmoil, strengthened against all of its 16 major peers tracked by Bloomberg. Bunds rose for an eighth day, the longest streak since October 2009, after the U.S. House of Representatives yesterday voted to approve measures that will raise the national debt limit enough to fund the government until 2013 and threatens automatic spending reductions to enforce a goal of cutting $2.4 trillion over the next decade. U.S. Treasuries advanced for a fourth day. Ten-year bund yields fell three basis points to 2.42 percent. Yields on two-year notes were four basis points lower at 1.06 percent. Belgian Auction The cost of insuring against default on European sovereign and corporate debt rose, according to traders of credit-default swaps. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments jumped 22 basis points to 299. An increase signals deteriorating perceptions of credit quality. The yield premium investors demand to hold Belgian 10-year bonds instead of benchmark bunds widened to a euro-era record of 202 basis points before an auction of as much as 2.8 billion euros of 105-and 168 day bills. German government bonds handed investors 3.4 percent this year, compared with 4.6 percent for U.S. Treasuries, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Greek bonds have lost 11 percent, while Portugal’s have declined 22 percent, the indexes show. To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net; Paul Dobson in London at pdobson2@bloomberg.net. To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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