Bloomberg News

German 30-Year Bonds Drop, Yield Breaches 2.5%, as Stocks Climb

January 04, 2012

Jan. 3 (Bloomberg) -- German 30-year bonds slid, pushing yields above 2.5 percent for the first time in almost two weeks, as stock gains and falling unemployment damped demand for the perceived safety of the region’s benchmark debt.

Ten-year bund yields earlier reached the highest since Dec. 28, before the country sells as much as 5 billion euros ($6.53 billion) of the securities tomorrow. The Stoxx Europe 600 Index climbed for a second day, gaining 1.6 percent. Belgian borrowing costs slid to an 18-month low as it sold three- and six-month bills, while an 85-day bill sale by the Netherlands drew a rate of zero. Austria will sell 1.32 billion euros of debt Jan. 10.

“People have been a little bit surprised by the relatively positive economic outcomes that we’ve seen in the past couple of weeks,” said Elwin de Groot, a market economist at Rabobank Nederland in Utrecht, the Netherlands. “Apart from that, the market will be very much focused on the round of refinancing.”

The German 30-year yield rose two basis points, or 0.02 percentage point, to 2.47 percent at 4.54 p.m. London time. It earlier reached 2.51 percent, the first time it has climbed above 2.50 percent since Dec. 22. The 3.25 percent bond due July 2042 fell 0.525, or 5.25 euros per 1,000-euro face amount, to 116.435. Ten-year yields were little changed at 1.90 percent, after rising to 1.94 percent.

Jobless Rate

Longer-maturity bonds dropped as a government report showed German unemployment fell more than economists estimated in December. The number of people out of work slid a seasonally adjusted 22,000 to 2.89 million, the Federal Labor Agency said. Economists forecast a decline of 10,000, according to a Bloomberg News survey. The jobless rate slid to 6.8 percent.

Belgium sold 1.28 billion euros of three-month bills at a rate of 0.264 percent, down from 0.78 percent at a previous offering on Dec. 13. The nation also auctioned 1.155 billion euros of debt due in six months, paying 0.364 percent, compared with 2.438 percent on Nov. 29. The nation’s 10-year yields climbed four basis points to 4.27 percent.

The Netherlands sold 2.99 billion euros of securities maturing March 30 at a rate of zero, and auctioned 1.66 billion euros of December 2012 bills at 0.05 percent.

France also issued shorter-dated debt, selling 8.7 billion euros of 84-, 161- and 315-day securities.

Austrian Bonds

Yields in the world’s leading economies may rise this year as governments have more than $7.6 trillion of debt maturing, analysts’ forecasts compiled by Bloomberg show. Led by Japan’s $3 trillion and the U.S.’s $2.8 trillion, the amount coming due for the Group of Seven nations and Brazil, Russia, India and China is up from $7.4 trillion at this time last year, according to data compiled by Bloomberg.

The extra yield investors demand to hold Austrian 10-year bonds instead of German bunds increased nine basis points to 123 basis points, while the spread between Austria’s two- and 10- year yields widened seven basis points to 179 basis points.

“The widening has more to do with what’s going on in Hungary,” said Brian Barry, an analyst at Evolution Securities Ltd. in London. “The Austrian banking sector is one of the most exposed to central and eastern Europe.”

Hungarian Sale

Hungary sold three-month bills at the highest yield since 2009 at its first debt auction since passing laws that diminished the country’s chance of obtaining international financial aid. Lawmakers approved regulations on Dec. 30 that stripped central bank President Andras Simor of his right to name deputies, expanded the rate-setting Monetary Council and created a position for a third vice president.

Losses in German bunds will likely be limited as European leaders struggle to contain the debt crisis, according to John Wraith, a fixed-income strategist at Bank of America Merrill Lynch Global Research in London.

“Bunds will return to a safe-haven investment as the odds are stacked against any riskier assets,” Wraith said.

German bonds returned 9.7 percent last year, the most since the financial crisis of 2008, when they made 12 percent, indexes developed by Bank of America Merrill Lynch show.

The German 10-year yield fell to a record 1.636 percent on Sept. 23 as investors sought a refuge from a sovereign debt crisis that forced Greece, Ireland and Portugal to seek bailouts. Italian 10-year yields climbed to a euro-era high of 7.48 percent on Nov. 9 as the crisis threatened to infect the euro area’s third-biggest economy.

The Italian 10-year yield was little changed at 6.92 percent as the European Central Bank was said to buy the debt. The yield earlier rose to 6.96 percent.

Volatility on Spanish sovereign debt was the highest in euro-area markets today, followed by Ireland, according to measures of 10-year bonds, two- and 10-year yield spreads and credit-default swaps.

--With assistance from Zoe Schneeweiss in Vienna and Andras Gergely in Budapest. Editors: Nicholas Reynolds, Mark McCord

To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net; David Goodman in London at dgoodman28@bloomberg.net

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


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