BLBG; German 10-Year Yield Rises From Record Low as European Industries Expand
German 10-year government bond yields rose from near the lowest on record as reports showed Europe’s services and manufacturing industries expanded for a 13th month in August.
A composite index based on a survey of euro-area purchasing managers in both industries fell to 56.1 from 56.7 in July, London-based Markit Economics said today. Economists forecast 56.3. A reading above 50 indicates expansion. Demand rose at an auction of Belgian bonds maturing in 2013, 2020 and 2022.
“We’ve had four weeks of strong rally in bunds and that’s leading to some consolidation,” said Patrick Jacq, a senior fixed-income strategist at BNP Paribas SA in London. “We are not expecting a strong sell-off and there should be a more constructive turn towards the end of the week.”
German 10-year yields rose three basis points to 2.29 percent at 2:03 p.m. in London. The 2.25 percent security due September 2020 fell 0.25, or 2.5 euros per 1,000-euro ($1,272) face amount to 99.615. Thirty-year yields rose one basis point to 2.91 percent.
German government bonds returned 2.7 percent this month, the most since November 2008, according to indexes compiled by Bank of America Corp.’s Merrill Lynch unit. That compares with 1.4 percent for U.S. Treasuries and 3 percent for U.K. gilts.
Disappointing U.S. Data
Yields on bunds, gilts and Treasuries slid this month as data from the U.S. missed estimates. A Citigroup Inc. index of U.S. economic data surprises fell to minus 59 last week, the least since January 2009. The number of unemployment claims unexpectedly shot up by 12,000 to 500,000 in the week ended Aug. 14, Labor Department figures showed on Aug. 19.
The bonds of other euro-region nations fell in line with bunds, leaving so-called yield spreads little changed. The difference in yield between Spanish and German 10-year bonds was at 178 basis points, or 1.78 percentage points, according to Bloomberg generic data. The Irish-German yield spread was at 304 basis points, while the Greek-German spread narrowed two basis points to 846 basis points.
Benchmark Belgian 10-year bonds erased their decline after the debt sales, leaving the yield little changed at 2.96 percent after rising as high as 3 percent.
Belgian Sales
The 4 percent 2013 notes attracted bids worth 3.39 the securities offered, compared with 3.21 last time the debt was sold on June 28. The 4 percent 2022 bonds commanded a so-called bid-to-cover ratio of 1.84 versus 1.72 when they were last sold on Feb. 22. The 3.75 percent 2020 bonds had a bid-to-cover ratio of 1.84, versus 1.85 last time the debt was sold on July 26.
The Irish-German spread widened more than 80 basis points this month, while the Spanish spread added 25 basis points and the Portuguese spread 50 basis points.
“The adverse turn in peripheral fortunes since the start of the month has come earlier than expected with Irish banking sector concerns and potential deficit ramifications,” Nomura European interest-rate strategists led by Nick Firoozye in London wrote in a research report today. “There could be more bumps to come over the next month or so. However, among the ‘problem issuers,’ some 95 percent of rollover obligations have already been completed for 2010.”
Spain sells three- and six-month bills tomorrow, while Portugal sells up to 1.25 billion euros of bonds on Aug. 25, while Italy issues debt on Aug. 26, 27 and 30.
To contact the reporter on this story: Matthew Brown in London at mbrown42@bloomberg.net
