Bloomberg News

German Bonds Stay Lower as ECB Holds Rate; Spain, Italy Rally

January 12, 2012

Jan. 12 (Bloomberg) -- German bonds stayed lower after the European Central Bank kept its main interest rate unchanged, after cutting it at the previous two meetings in a bid to support the economy amid the region’s debt crisis.

Spanish and Italian bonds jumped after auctions. The decision to keep the refinancing rate at 1 percent, equaling a record low, was the median forecast of 53 economists surveyed by Bloomberg. ECB President Mario Draghi, who offered banks unlimited cash for three years last month, will explain the outcome at 2:30 p.m. in Frankfurt.

Germany’s 10-year bund yield rose three basis points, or 0.03 percentage point, to 1.84 percent at 12:52 p.m. London time. The 2 percent bund due in January 2022 fell 0.230, or 2.30 euros per 1,000-euro ($1,276) face amount, to 101.445. The two- year yield was at 0.163 percent, after falling to 0.134 percent.

Today “they’ll be pretty cautious about the economy, they’ll signal that they will continue to provide support for the fragile banks,” Nick Stamenkovic, a fixed-income strategist in Edinburgh at RIA Capital Markets Ltd., a broker for banks and investors, said before the decision. “Rates will be coming down again by the end of the first quarter.”

The yield on the Spanish 10-year bond slid 23 basis points to 5.10 percent, with the similar-maturity Italian yield dropping 37 basis points to 6.61 percent.

Spain sold 10 billion euros of notes, twice the target for the sale, while Italy sold 12 billion euros of bills, easing concerns the countries would struggle to finance their debts and sending bonds and the euro higher.

Bond Returns

German bonds are little changed this year, after returning 9.7 percent in 2011, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. The securities earned the most since 2008 last year as the region’s debt crisis deepened, driving investors to the assets perceived as safest in the euro area.

The yield on the two-year note fell two basis points to 0.29 percent at the December meeting. The 10-year yield jumped 10 basis points to 1.94 percent on Oct. 6, the last time the ECB, then led by Jean-Claude Trichet, kept rates unchanged.

--Editors: Daniel Tilles, Paul Dobson

To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at; Lucy Meakin in London at

To contact the editor responsible for this story: Daniel Tilles at

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