Bloomberg News

German Bunds Decline on Stocks, Confidence; Belgian Bonds Fall

September 26, 2011

Sept. 26 (Bloomberg) -- Germany’s 10-year bonds fell for a second day as European stocks gained and a report showed business confidence declined less than economists forecast, reducing demand for the region’s safest securities.

Two-year notes also dropped after a central bank official said euro-area policy makers are likely to debate a range of measures next week to spur economic growth. Belgian 10-year bonds fell after the government sold 3.5 billion euros ($4.7 billion) of securities in its biggest auction since June 2010. Greek notes slid for a sixth day.

“Part of it is in reaction to a firmer tone in equities, without a shadow of a doubt,” said Marc Ostwald, a fixed-income strategist at Monument Securities Ltd. in London. “The Ifo survey was not quite as negative as people expected. It acts as a bit of a check to the doom and gloom we’ve had.”

The German 10-year yield increased seven basis points to 1.82 percent at 4:19 p.m. in London. The 2.25 percent security due September 2021 fell 0.670, or 6.70 euros per 1,000-euro ($1,348) face amount to 103.880. Two-year yields climbed five basis points to 0.45 percent, after falling to a record low of 0.324 percent on Sept. 23.

The Stoxx Europe 600 Index gained 1.5 percent, and the Standard & Poor’s 500 Index rose 0.7 percent.

The Ifo institute in Munich said its business climate index, based on a survey of 7,000 executives, dropped to 107.5 in September from 108.7 in August. Economists had forecast a decline to 106.5, according to a Bloomberg News survey.

Boosting Growth

European Central Bank policy makers are set to discuss resuming covered-bond purchases along with further measures to boost growth, the central bank official said. The reintroduction of 12-month loans to banks will also be discussed at the ECB’s Oct. 6 policy meeting, said the person, who spoke on condition of anonymity because the information is confidential.

Bonds in so-called core countries surged this quarter, with the German 10-year yield falling more than a percentage point since June 30, as reports signaled the region’s economy is slipping back into a recession and leaders remained divided over how to solve the debt crisis.

Belgium’s 10-year yield increased four basis points to 3.81 percent. The extra yield investors demand to hold the securities instead of bunds narrowed to 200 basis points, from 202 basis points at the end of last week.

Belgium’s borrowing costs fell at auctions of securities maturing between 2016 and 2041. Spain is scheduled to offer three-month and six-month bills tomorrow, while Italy is due to auction 14.5 billion euros of debt.

‘Solid’ Demand

“Demand was relatively solid and not far from the previous auction’s results,” Annalisa Piazza, a fixed-income strategist in at Newedge Group SA in London, wrote in an e-mailed note. “Yields were generally lower than at the previous auctions, especially at the long end of the curve.”

Spanish 10-year bonds rose for a third day after German Chancellor Angela Merkel said euro-area leaders must erect a firewall around Greece to avert contagion to other nations.

Spain’s 10-year yield dropped five basis points to 5.16 percent. Ireland’s 10-year rates declined 20 basis points to 8.55 percent.

Greek bonds fell after To Paron newspaper and Proto Thema reported yesterday that most Greeks expect the country to default. Additional measures are needed in Greece, Finnish Prime Minister Jyrki Katainen was quoted as saying in an interview with NRC Handelsblad.

Greece’s two-year yield jumped 149 basis points to 71.81 percent, after rising to a record 84.52 percent on Sept. 14. The 10-year yield increased 41 basis points to 24.05 percent.

Monthly Gain

German government bonds have returned 3.3 percent this month, extending this year’s gain to 8.7 percent, according to indexes compiled by the European Federation of Financial Analysts Societies and Bloomberg. Treasuries rose 2 percent in September, while Greek bonds have tumbled 25 percent.

Volatility on Belgium’s sovereign debt was the highest among euro-area markets today, according to measures of 10-year bonds, two-10-year spreads and credit-default swaps. Swings on Irish 10-year bonds were 1.7 times the 90-day average, according to the Bloomberg gauge of developed markets.

--With assistance from Martijn van der Starre in Amsterdam, Natalie Weeks in Athens, John Martens in Brussels, Simon Kennedy, Gabi Thesing and Rich Miller in Washington. Editors: Nicholas Reynolds, Peter Branton

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

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


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