BLBG: European Bonds Fall as Stock Gains, Supply Concern Saps Demand
European government bonds fell for a second day before sales of debt by Austria and the Netherlands and as gains in stocks sapped demand for the safest assets.
The declines pushed the two-year note yield to the highest level in more than a week after a government report showed German inflation in February accelerated for the first time in seven months. Austria will today sell 1.65 billion euros ($2.1 billion) of notes due 2014 and the Netherlands will offer as much as 3 billion euros of three-year securities. The U.S. Treasury is preparing to auction a record $34 billion of three-year debt.
“The market is struggling a bit into bond auctions, and there’s a bucket of supply coming up,” said Sean Maloney, a fixed-income strategist in London at Nomura International Plc. “Bonds need to cheapen to help the market absorb new debt and that’s a temporary speed bump. The macro picture remains the key driving force of the market.”
The yield on the German two-year note rose two basis points to 1.28 percent by 8:15 a.m. in London. It dropped to 1.10 percent March 5, the lowest level since Bloomberg began compiling the data in 1990. The price of the 2.25 percent security due December 2010 slipped 0.03, or 30 euro cents per 1,000-euro face amount, to 101.65.
The yield on the 10-year German bund, Europe’s benchmark government security, advanced two basis points to 2.96 percent. Bond yields move inversely to prices.
The German inflation rate, calculated using a harmonized European Union method, rose to 1 percent, from 0.9 percent in January, the Federal Statistics Office said in Wiesbaden today. That matches an initial estimate released on Feb. 27. In the month, consumer prices climbed 0.7 percent.
Growth Outlook
Further declines in bonds may be limited on concern the world economic outlook is worsening. The global economy will contract this year, International Monetary Fund Managing Director Dominique Strauss-Kahn said in a speech today in Tanzania.
Billionaire Warren Buffett, whose Berkshire Hathaway Inc. posted its worst results ever in 2008, said yesterday the economy “has fallen off a cliff” and that efforts to stimulate the recovery may lead to inflation higher than the 1970s.
