Bloomberg News

German Notes Fall on ECB as French Bonds Rise on Auction

May 03, 2012

France’s 10-year bonds advanced after borrowing costs fell at an auction of 7.43 billion euros ($9.76 billion) of debt, the last sale of government securities before the nation chooses its next president.

German government bonds snapped a two-day advance as European Central Bank President Mario Draghi indicated policy makers didn’t discuss an interest-rate cut at their policy meeting this week. Spain’s five-year notes climbed after it auctioned 2.52 billion euros of securities, exceeding the maximum target, and stayed higher after the nation’s credit rating was lowered by DBRS.

“The French auction results were very solid,” said Lyn Graham-Taylor, a fixed-income strategist at Rabobank International in London. “The French elections appear to have had no effect.”

France’s 10-year bond yields dropped six basis points, or 0.06 percentage point, to 2.91 percent at 4:40 p.m. London time. The 3 percent security due April 2022 rose 0.47, or 4.70 euros per 1,000-euro face amount, to 100.75.

Investors bought French benchmark bonds at an average yield of 2.96 percent at today’s auction, compared with 2.98 percent on April 5, debt-agency data showed. The nation also sold securities due in 2017,2021 and 2025.

French voters go to the polls on May 6 in the second round of elections that pit President Nicolas Sarkozy against Socialist challenger Francois Hollande.

Spanish Auction

Spain auctioned notes maturing in 2015 and 2017. Its five- year note yield fell seven basis points to 4.70 percent.

Yields on Euribor futures rose as traders cut bets that the ECB will lower borrowing costs after Draghi told a press conference in Barcelona today that the central bank didn’t talk about cutting rates. The implied yield on the contract expiring in June 2013 rose one basis point to 0.605 percent.

“The fact that they didn’t talk about cutting interest rates is a little bit disappointing for those that had been hoping for that,” said Marius Daheim, a senior fixed-income strategist at Bayerische Landesbank in Munich. “The fact that bunds haven’t sold off that much shows that some people in the market think the ECB will eventually have to do something.”

German two-year note yields climbed one basis point, or 0.01 percentage point, to 0.09 percent.

Ten-year bund yields were little changed at 1.61 percent. They slid to a record 1.599 percent yesterday, when two-, five- and 30-year securities also dropped to the lowest since Bloomberg began tracking the data.

The ECB left its main rate at 1 percent, as predicted by all 58 economists surveyed by Bloomberg News.

Draghi “has not given a signal of lower rates, particularly by admitting that a rate cut was not discussed at all today,” said John Davies, a fixed-income strategist at WestLB AG in London. “Markets are on balance a bit disappointed so far.”

German bonds returned 1.6 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish securities lost 1.2 percent, and French debt gained 2.3 percent.

To contact the reporters on this story: Lucy Meakin in London at; David Goodman in London at

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

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