Bloomberg News

Bunds Decline Before Confidence Data as Spain Sells Bills

April 17, 2012

German government bonds fell for the first time in three days as stocks advanced before a report that economists said will show investor confidence in Europe’s largest economy stayed near a 21-month high in April.

The 10-year bund yield rose by the most in almost a week as Spain raised more than its maximum target at a sale of 12- and 18-month bills. Spanish and Italian government bonds advanced and the Stoxx Europe 600 Index gained 0.8 percent, damping demand for the safety of German fixed-income assets. Spanish securities fell yesterday and the cost of insuring them against default surged to a record.

“We have seen some sour sentiment in the previous days and now we are seeing some calm” in Europe’s bond markets, said Niels From, chief analyst at Nordea Bank AB (NDA) in Copenhagen. “In general we have seen the ZEW surprise on the upside and there is some hope that the German economy is remaining strong.”

German 10-year bond yields increased three basis points, or 0.03 percentage point, to 1.75 percent at 9:44 a.m. London time. The rate dropped to 1.639 percent on April 10, within a basis point of a record low reached in September. Rates climbed as much as four basis points today, the biggest increase since April 11. The price of the 1.75 percent security due July 2022 fell 0.27, or 2.70 euros per 1,000-euro ($1,315) face amount, to 100.04.

Two-year note yields were at 0.15 percent, after reaching an all-time low of 0.091 percent on April 10.

ZEW Index

The ZEW Center for European Economic Research will say today its index of investor and analyst expectations for the economy was at 19 in April after reaching 22.3 in March, according to the median estimate of analysts in a Bloomberg survey. Last month’s reading was the highest since June 2010.

Spain’s two-year rate slid 14 basis points to 3.50 percent. The 10-year yield dropped 13 basis points to 5.94 percent, after jumping yesterday to 6.16, the most since Dec. 1. Italy’s 10- year yields declined seven basis points to 5.52 percent, while its two-year note yields fell 13 basis points to 3.23 percent.

Spain sold 3.18 billion euros of bills today, compared with a maximum target of 3 billion euros the Treasury set for the sale.

The nation’s 10-year yields have still climbed almost 1 percentage point this year amid concern the nation may become the next euro-region member to seek external aid. It plans to sell 2.5 billion euros of bonds on April 19.

German Auction

It would be “desirable” for the European Central Bank to follow a more expansionary policy as the government implements austerity measures, Spanish Industry Minister Jose Manuel Soria said in an interview on RNE today. He also said Spain ruled out seeking a bailout, even as the threat of losing access to markets makes budget cuts necessary.

Germany will sell two-year notes tomorrow, while France plans to auction two-, three- and five-year securities and inflation-linked debt on April 19.

The two-year German yield, which is consolidating near the April 10 record low of 0.091 percent, will meet resistance should it rise to the April 12 high of 0.163 percent, according to data compiled by Bloomberg. Resistance refers to an area on yield charts where orders to buy a security may be grouped.

German bonds returned 1.1 percent so far this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish securities dropped 2.5 percent, while Italy’s rallied 8.7 percent, the indexes show.

To contact the reporter on this story: Emma Charlton in London at echarlton1@bloomberg.net or Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net.

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


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