German bunds advanced, sending the nation’s borrowing costs to record lows, on speculation Europe’s economic slump is deepening and exacerbating the region’s financial crisis.
The nation’s two-, five-, 10- and 30-year yields fell to records after unemployment in the euro area rose in March and manufacturing and services shrank for a ninth month in April, stoking demand for German assets. Spanish and Italian bonds advanced after European Central Bank President Mario Draghi left open the option of further stimulus if the region’s economy deteriorates further. French 10-year bonds gained for a second week before the nation holds elections tomorrow.
“The data this week has been soft,” said Eric Wand, a fixed-income strategist at Lloyds Banking Group Plc in London. “People are still happy to own German bonds, despite where yields are, given the increasing uncertainty. Safety mentality is still a factor.”
The German 10-year yield dropped three basis points, or 0.03 percentage point, to 1.59 percent at 4:41 p.m. London time yesterday after earlier declining to a record 1.58 percent. The 1.75 percent bond due July 2022 traded at 101.515 percent of face value. The benchmark yield fell 11 basis points this week.
The yield on 30-year bonds slid to an all-time low 2.294 percent and bund futures climbed to an all-time high of 142.13 after a report showed the U.S. added fewer workers than forecast in April. Five-year rates reached a record 0.546 percent.
Two-year yields dropped to an all-time low of 0.066 percent on May 2.
A euro-area composite index based on a survey of purchasing managers in services and manufacturing industries declined in April to 46.7 from 49.1 in March, London-based Markit Economics said yesterday. A reading of less than 50 indicates contraction.
The unemployment rate in the 17-nation euro area climbed to 10.9 percent, the highest in almost 15 years, in March, from 10.8 percent a month earlier, the European Union’s statistics office in Luxembourg said May 2.
The ECB kept its main refinancing rate at a record low 1 percent, as predicted by all 58 economists surveyed by Bloomberg News. While policy makers didn’t discuss lowering interest rates at a meeting in Barcelona, Draghi left open the option of further stimulus if the economy continues to deteriorate.
Italian 10-year yields fell for a second week to 5.46 percent from 5.64 percent on April 27. The yield on similar maturity Spanish debt fell for a third week, slipping 13 basis points to 5.75 percent.
French bonds climbed, pushing 10-year yields down 16 basis points this week to 2.84 percent as five polls showed socialist candidate Francois Hollande maintaining a lead over Nicolas Sarkozy before the May 6 vote in France. Greek bonds due February 2023 fell before the country holds its own elections, with the yield rising three basis points from April 27 to 20.58 percent.
German debt has returned 1.6 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. French bonds rose 2.6 percent, while Italy’s securities gained 9.8 percent.
Germany will auction 5 billion euros of five-year notes on May 9, while Italy and France sell bills next week.
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