BLBG: European Bonds Gain on Bets U.S. Tests to Show Banks Struggling
European government bonds advanced on bets preliminary results of tests of U.S. banks may show some are still struggling to overcome the lending that precipitated the global financial crisis.
The German 10-year bund was headed for its first weekly advance since March as the MSCI World Index of stocks dropped this week. U.S. banks getting results today of government stress tests may find it difficult to raise money after bad assets at the biggest lenders almost tripled on average in the past year.
“The stress test will have a positive impact on bonds by having a negative impact on market sentiment,” said Kornelius Purps, a fixed-income strategist at UniCredit Markets & Investment Banking in Munich.
The yield on the 10-year bund, Europe’s benchmark government security, fell four basis points, or 0.04 percentage point, to 3.18 percent at 12:15 p.m. in London, leaving it down nine basis points this week. The 3.75 percent security due in January 2019 gained 0.33, or 3.3 euros per 1,000-euro ($1,317) face amount, to 104.65.
The two-year note yield slipped five basis points to 1.40 percent and was down seven basis points this week. Bond yields move inversely to prices.
The tests on the 19 largest banks in the U.S. are expected to focus in part on loan quality as a measure of health. The lenders may need to raise $1 trillion in capital to cushion losses according to an April 23 report by KBW Inc.
Support of ‘Unknowns’
“We need to get the unknowns out of the way,” said Orlando Green, a fixed-income strategist in London at Calyon, the investment-banking arm of Credit Agricole SA. “These unknowns are supportive of the bond market.”
German bonds lost 0.3 percent this year, compared with decreases of 2.7 percent for British securities and 2.6 percent for U.S. Treasuries, according to Merrill Lynch & Co.’s German Federal Governments, U.K. Gilts and U.S. Treasury Master indexes.
European government debt rose even after German business confidence rebounded in April from a 26-year-low as interest- rate cuts and government stimulus packages boosted expectations that the recession will ease later in 2009. The Ifo institute said its business climate index increased to 83.7 from 82.2 in March. Economists expected a gain to 82.3, the median of 36 forecasts in a Bloomberg News Survey showed.
