Bloomberg News

Bunds Advance, 30-Year Yield Drops to Record, on Crisis Concern

December 15, 2011

Dec. 14 (Bloomberg) -- Germany’s bonds advanced, with the 30-year yield falling to a euro-era record, as concern euro-area governments aren’t doing enough to halt the debt crisis boosted demand for safer assets.

Ten-year bund yields dropped to a three-week low as Chancellor Angela Merkel said there’s no easy and fast solution to the region’s sovereign-debt woes. Germany’s two-year notes were little changed as the nation sold 4.18 billion euros ($5.4 billion) of the securities at a record low yield. Italian five- year notes pared gains after borrowing costs climbed to a euro- era record at a sale of the debt today.

“The market is very nervous and it is in general a risk- off environment,” said Niels From, chief analyst at Nordea Bank AB in Copenhagen. “Everyone remains concerned about the banking industry and whether the measures taken last week by the European Central Bank and the European Union will work. German bunds are in demand.”

German 10-year yields fell seven basis points, or 0.07 percentage point, to 1.96 percent at 3:49 p.m. London time after dropping to 1.946 percent, the lowest level since Nov. 23. The 2 percent bond due January 2022 rose 0.65, or 6.50 euros per 1,000-euro face amount, to 100.395.

The 30-year rate dropped 10 basis points to 2.41 percent after declining to 2.401 percent, the lowest since Bloomberg began collecting the data in 1994. Two-year yields were little changed at 0.29 percent.

‘Suffer Setbacks’

The EU’s fiscal unity process “will suffer setbacks” and redressing the euro bloc’s failures will strengthen Europe, Merkel said in a speech to parliament in Berlin. “There are no simple and fast solutions,” she said.

The euro fell below $1.30 for the first time since January, weakening as much as 0.6 percent to $1.2965.

Demand for safer assets were also supported amid speculation rating companies will downgrade the debt of AAA nations such as France if the debt crisis isn’t contained.

Moody’s Investors Service said on Dec. 11 that the measures agreed at last week’s leaders’ summit in Brussels don’t go far enough to stem the crisis. The agreement offered few new measures and doesn’t diminish the risk of credit-ranking revisions, Moody’s said.

Germany sold an additional 4.18 billion euros of benchmark two-year notes at an average yield of 0.29 percent, down from 0.39 percent at the previous sale of the securities Nov. 16. Investors submitted bids for 1.43 times the amount of debt allotted, up from 1.13 last month.

‘Absorbed Easily’

Italian notes erased earlier gains as the nation sold 3 billion euros of securities due in September 2016 at an average yield of 6.47 percent, up from 6.29 percent at the previous sale on Nov. 14. The bid to cover ratio dropped to 1.42 times from 1.47 at the prior auction.

“The auction is relatively small and was absorbed easily,” said Luca Cazzulani, a senior fixed-income strategist at UniCredit Global Research in Milan. “Yields are at pretty attractive levels.”

The Italian five-year yield was little changed at 6.80 percent after falling as much as 16 basis points.

Spain’s two-year notes gained for a fourth day before the nation auctions securities due in 2016, 2020 and 2021 tomorrow.

Two-year yields dropped seven basis points to 4.10 percent. The five-year rate declined two basis points to 4.94 percent.

Bunds also rose as a report showed European industrial production unexpectedly dropped for a second month in October. Production fell 0.1 percent from September, when it slumped 2 percent. Economists forecast output to be unchanged, a Bloomberg News survey showed.

German government bonds have returned 8.5 percent this year, according to indexes compiled by the European Federation of Financial Analysts Societies and Bloomberg. Italian debt lost 7.6 percent, and Spanish securities gained 3.1 percent.

--Editors: Matthew Brown, Nicholas Reynolds

To contact the reporters on this story: Keith Jenkins in London at kjenkins3@bloomberg.net; Emma Charlton in London at echarlton1@bloomberg.net

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


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