Bloomberg News

German 10-Year Yield Drops to Record on Growth, Debt Concern

August 20, 2011

Aug. 20 (Bloomberg) -- The German benchmark bund yield dropped to a record low as concern about global growth and European officials’ ability to solve the region’s debt crisis drove investors to seek the safest assets this week.

Greek debt fell for a fourth week amid speculation demands for collateral will derail the nation’s latest aid package. Bund yields posted the biggest weekly slide this month as the Stoxx Europe 600 Index posted its fourth weekly decline. European Central Bank Governing Council member Ewald Nowotny said he was fearful of a period of slow growth and low inflation.

“The panic has still scope to continue,” said Marius Daheim, a senior fixed-income strategist at Bayerische Landesbank in Munich. “The market may want to see the 2 percent level broken, or at least tested. There are no fundamental drivers on the horizon that would turn around this tendency at the moment.”

Ten-year bund yields fell 23 basis points this week to 2.11 percent at 4:59 p.m. in London yesterday, after dropping to a record 2.03 percent on Aug. 18. Two-year yields declined 4 basis points to 0.65 percent.

Finland’s efforts to get collateral in exchange for new emergency loans to Greece highlighted obstacles to approving a second bailout, driving Greek yields up by the most since May. The Netherlands, Slovenia, Austria and Slovakia all expressed a desire to follow in demanding collateral arrangements before approving new loans to Europe’s most indebted nation.

Greek Bonds

The Greek 10-year yield climbed 110 basis points to 16.64 percent, while the two-year note yield jumped 353 basis points to 37.77 percent, breaching 37 percent for the first time since July 21. The yield on Portuguese notes of a similar maturity rose 52 basis points to 12.33 percent.

German investor confidence fell for a fifth month, according to the median forecast of 30 economists surveyed by Bloomberg before the ZEW index on Aug. 23. The Ifo institute’s business confidence survey may also slip, a separate survey shows. The data comes amid rising anxiety about global growth after U.S. reports this week showed jobless claims rose and the Philadelphia Fed’s measure of manufacturing plunged to the lowest level since March 2009.

German government bonds have handed investors a 2.8 percent return this month, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Greek bonds have lost 3.7 percent, pushing their decline this year to 15 percent. Portuguese securities have lost 16 percent in 2011, the indexes show. Bunds made 5.9 percent this year, while Treasuries handed a 7.8 percent gain.

--Editors: Mark McCord, Nicholas Reynolds

To contact the reporters on this story: Lucy Meakin in London at lmeakin1@bloomberg.net; Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net.

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net.


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