BLBG: European Two-Year Notes Advance for Fourth Day as Stocks Slump
By Andrew MacAskill
Oct. 23 (Bloomberg) -- European government notes rose for a fourth day as stocks dropped, Finland's Finance Minister Jyrki Katainen said the euro region may be headed for a recession lasting several years and French business confidence slumped this month.
The gains pushed the two-year note yield to the lowest level in almost three years as the MSCI Asia Pacific Index declined to the weakest since May 2004 and Credit Suisse Group AG reported its second quarterly loss this year. Recession may be ``very close'' for all European countries, Katainen said yesterday.
``The market is going to remain focused on the doom and gloom,'' said Orlando Green, a fixed-income strategist in London at Calyon, the investment-banking unit of France's Credit Agricole SA. ``It's our view and many central banks' view that we are in the midst of a recessionary slowdown.''
The yield on the two-year note slipped 9 basis points to 2.72 percent by 10:38 a.m. in London. The price of the 4 percent note due September 2010 climbed 0.16, or 1.6 euros per 1,000-euro ($1,282) face amount, to 102.31. The yield on the 10-year German bund, Europe's benchmark government security, fell 2 basis points to 3.78 percent. Yields move inversely to bond prices.
Equities around the world fell, with European stocks following U.S. and Asian shares lower. The MSCI Asia-Pacific Index lost 3 percent and the Dow Jones Stoxx 600 retreated 1.23 percent.
Two-year note yields dropped 22 basis points this week as concern the credit-market meltdown is tipping the global economy into a recession encouraged investors to buy shorter-dated debt, regarded as the safest asset.
French Sentiment
Business sentiment in the euro region's second-largest economy slid to the lowest level in almost 15 years, Insee, the Paris-based national statistics office said today. An index of confidence among 4,000 manufacturers fell to 88, from 91 in September.
``Recession is very close in some particular countries, maybe in all the European countries,'' Katainen, said in a Bloomberg Television interview in Helsinki. ``I don't know how long a recession or down-cycle we will face, but maybe it will take some two or three years. Even if we can calm the international turmoil, slower economic development will follow.''
The difference in yield between two- and 10-year German notes increased to 107 basis points, after reaching 117 basis points on Oct. 16, the most since June 2005.
Still, the gains that have pushed two-year yields to the lowest level since December 2005 may be exaggerated, according to Peter Mueller, a fixed-income strategist in Frankfurt at Commerzbank AG, Germany's second-biggest lender.
``We saw a significant jump yesterday and maybe it was too strong a move, you often see a consolidation after a big move like that,'' Mueller said. ``There was no new information and maybe it was overdone. Today's moves will be more limited.''
To contact the reporter on this story: Andrew MacAskill in London at amacaskill@bloomberg.net
