Bloomberg News

German Bund Yields Fall to Records as Crisis Escalates

May 19, 2012

German 10-year bonds rose for a fifth week, pushing yields down to records, as heightened concern Greece will withdraw from the euro area boosted demand for the region’s safest securities.

Two-, five- and 30-year yields also declined to all-time lows while the bonds of AAA rated Finland and the Netherlands advanced. Investors snapped up bunds as Fitch Ratings downgraded Greece and Moody’s Investors Service cut the ratings of 16 Spanish banks. Gross domestic product in the euro region (EUGNEMUQ:US) stagnated last quarter, a European Union report showed May 15.

“Everybody is afraid of Greece leaving the euro zone or getting bankrupt,” said Christian Reicherter, an analyst at DZ Bank AG in Frankfurt. “Risk-off trades are in at the moment. There’s no resistance in sight” even after the decline in bund yields, he said.

Germany’s 10-year yield fell nine basis points, or 0.09 percentage point, this week to 1.43 percent at 4:02 p.m. London time yesterday. The 1.75 percent bond due in July 2022 gained 0.8 or 8 euros per 1,000-euro face amount, to 102.975. The yield declined to a record 1.396 percent.

The two-year yield dropped four basis points this week to 0.06 percent after sliding to an all-time low 0.31 percent. Five-year yields slid to a record 0.463 percent, and 30-year rates fell as low as 1.396 percent.

AAA Rated

Investors are favoring bonds from Germany and Europe’s other remaining AAA rated countries as the financial crisis that started in 2009 shows no signs of ending. The selloff escalated after elections in Greece on May 6 failed to produce a clear winner and saw the Syriza party, which wants to annul the country’s bailout, finish in second place.

Economists predict euro-area reports next week will show consumer confidence declined in May, while manufacturing and services industries contracted.

Spain’s borrowing costs surged this week on concern banking losses will widen amid an increase in bad loans, the recession and restricted funding access. Moody’s yesterday downgraded the nation’s largest banks including Banco Santander SA and Banco Bilbao Vizcaya Argentaria SA by three levels, citing a recession and loan losses.

Spain’s 10-year bond yield rose 24 basis points this week to 6.25 percent, after surging above 6.50 percent for the first time since Nov. 29. Italian 10-year yields climbed for a second week, rising 28 basis points to 5.78 percent.

German bonds returned 3 percent this year through May 17, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish bonds lost 3.6 percent, and Italian debt gained 8.1 percent.

To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net; Keith Jenkins in London at kjenkins3@bloomberg.net

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


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