By Dhara Ranasinghe
LONDON Dec 19 Southern Europe led a fall in
euro zone government bond yields on Monday, with Italy again in
focus as troubled bank Monte dei Paschi made a last-ditch
attempt to raise 5 billion euros ($5.2 billion) by the end of
the year and avoid a state bailout.
A survey showing German business morale rose in December to
its highest level since February 2014 helped boost sentiment
towards riskier assets, with yields on peripheral euro zone
bonds falling 5-8 basis points in early trades.
As the day wore on, yields on higher-rated euro zone
government bonds also fell.
The move was particularly marked among long-dated bonds,
with Germany's 30-year bond yield dipping below the 1 percent
mark, falling 9 bps to hit a 10-day low of 0.98 percent.
Italy again grabbed the spotlight after Monte dei Paschi,
the third largest Italian bank, said on Sunday it
would offer new shares for sale between Monday and Thursday.
It also emerged on Monday that the lender is trying to
resolve differences with a key investor over its 5 billion euro
($5.2 billion) rescue plan to allow the deal to go ahead and
avoid a state bailout.
The European Central Bank has told the bank to raise capital
this year and offload 28 billion euros in bad loans, but finding
investors has proved difficult amid political turmoil and this
month's change of government.
Monte dei Paschi led European banking stocks lower as
investors expressed caution that the bank, whose shares
fell 11 percent on Monday, would be able to complete
its raising of capital.
Efforts over the past week to clean up the banking sector
and a smooth transition to a new prime minister, Paolo
Gentiloni, have helped Italian bonds recover from losses made in
the run-up up to a Dec. 4 referendum, in which voters rejected
proposed constitutional reforms. Matteo Renzi quit as premier
after that vote.
"The capital raising by Monte dei Paschi is important but it
is something that has been discussed for some weeks now," said
Luca Cazzulani, a strategist at UniCredit.
The yield on Italy's benchmark 10-year government bond was
down 7 basis points at 1.83 percent, heading back
towards a one-month low hit last week at around 1.77 percent.
Spain's 10-year bond yield fell 7 bps to 1.38 percent
, while Portugal's 10-year yield was 6 bps lower at
"Peripheral bonds are performing well today. We've had a
good Ifo survey and that has probably helped risk sentiment,"
said Rabobank fixed income strategist Lyn Graham-Taylor.
The Munich-based Ifo economic institute said its business
climate index, based on a monthly survey of some 7,000 German
firms, rose to 111.0 after from 110.4 in November.
Federal Reserve Chair Janet Yellen speaks later in the day,
with focus on her comments after the Fed's decision last week to
hike interest rates and signal a faster pace of hikes in 2017.
(Reporting by Dhara Ranasinghe; editing by Gareth Jones and