Bloomberg News

German Bonds Fall for 2nd Day on EU Optimism; Italy Bonds Drop

October 28, 2011

Oct. 28 (Bloomberg) -- Germany’s bonds fell for a second day, extending a weekly decline, as optimism Europe will contain its debt crisis fueled an advance in stocks and damped demand for safer investments.

Two-year German notes were poised for their first monthly drop since June. Top-rated bonds also declined before a report that economists said will show U.S. consumer confidence increasing, easing concern the global economy is stalling. Italian 10-year debt fell after the government sold notes and bonds, the first offering since European Union leaders ended an all-night summit in Brussels yesterday.

“The EU summit can be a step forward for solving the euro crisis,” said Alessandro Giansanti, a senior interest-rates strategist at ING Groep NV in Amsterdam. “Receding expectation of another recession in the developed markets is pushing risky assets higher” and bunds lower.

The German 10-year yield rose three basis points, or 0.03 percentage point, to 2.23 percent at 10:37 a.m. London time. The 2.25 percent bund due September 2021 fell 0.220, or 2.20 euros per 1,000-euro face amount, to 100.16. The yield has climbed 13 basis points this week.

The two-year rate increased one basis point to 0.67 percent, having risen 12 basis points this month.

France’s 10-year bond yield increased six basis points to 3.18 percent, and Dutch 10-year rates climbed three basis points to 2.59 percent. The Stoxx Europe 600 Index rose 0.2 percent.

Improving Sentiment

The Thomson Reuters/University of Michigan index of U.S. consumer sentiment was 58 this month from a preliminary reading of 57.5, according to economists surveyed by Bloomberg News.

The Italian 10-year rate increased four basis points to 5.91 percent, leaving the extra yield investors demand to hold the securities instead of similar-maturity bunds at 367 basis points. The spread widened to a euro-era record 416 basis points on Aug. 5. Spain’s 10-year yield climbed five basis points to 5.38 percent.

The EU summit in Brussels ended with a deal to recapitalize banks, boost the euro-area rescue fund to 1 trillion euros and apply a 50 percent reduction in how much Greece will repay bondholders. Stocks surged after the agreement was announced, extending the biggest monthly rally for the Standard & Poor’s 500 Index since 1974.

“We all recognize there have been some very good steps that have been taken in terms of giving confidence to the market that’s been sorely lacking, but how far that goes, we really don’t know,” said Nicholas Moore, chief executive officer of Sydney-based Macquarie Group Ltd., Australia’s biggest investment bank.

German bonds have returned 6.3 percent since June 30, according to Bank of America Merrill Lynch indexes. Italian debt declined 5 percent, even as the European Central Bank was said to purchase the securities.

--With assistance from Jacob Greber in Sydney. Editors: Nicholas Reynolds, Paul Dobson

To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net; Garth Theunissen in London gtheunissen@bloomberg.net

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


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