France’s bonds rose, driving 10-year yields to the least on record, as consumer confidence climbed and investors sought higher-yielding alternatives to German bunds as havens from Europe’s debt crisis.
The French securities had the longest run of gains since 2008 after Le Parisien reported yesterday that the government may raise the limit on tax-free state savings accounts, potentially boosting demand from banks holding the deposits. Spain’s debt slid amid concern the nation’s regional governments risk losing access to capital markets. German yields approached the all-time lows reached yesterday.
“The current German rate is really low and yield seekers are looking for other opportunities,” said Hajime Nagata, a bond investor in Tokyo at Diam Co., which manages the equivalent of $124.4 billion. “With the ceiling on the deposits going up, the assumption is that this money will be used to purchase French government bonds.”
The French 10-year yield fell two basis points, or 0.02 percentage point, to 2.52 percent at 4:29 p.m. London time and reached 2.422 percent, the least since Bloomberg began collecting the data in 1990. The 3 percent bond due April 2022 rose 0.215, or 2.15 euros per 1,000-euro ($1,253) face amount, to 104.205. Yields have fallen for eight days in a row, the longest run since November 2008.
France’s five-year yield slid two basis points to 1.35 percent after reaching 1.27 percent, setting a record for a second day. Thirty-year yields added two basis points to 3.21 percent, paring the decline since May 18 to 33 basis points.
Spread to Bunds
The extra yield, or spread, that investors get for buying 10-year French bonds over similar-maturity German bunds has narrowed 15 basis points this month to 114 basis points. It widened to a euro-era record 204 basis points in November.
Nagata said he would consider buying French 10-year bonds if the yield increases to 1.50 percentage points over rates on same-maturity German bunds.
Investors seeking safety within Europe amid speculation that Greece may withdraw from the monetary union are looking beyond Germany, which sold two-year notes on May 23 at an all- time low average yield of 0.07 percent. The securities carried a zero-percent coupon. The country also sold index-linked bonds due April 2023 with a real yield of minus 0.24 percent.
“Dramatic rallies in core-to-semi-core markets have dominated price action in the past two trading days,” Padhraic Garvey, head of developed-market debt at ING Groep NV in Amsterdam, wrote in a note to clients today. “The likes of France, Austria and Belgium are perceived to be offering the characteristics of relative safety, but with a spread that more than compensates for the extra risk.”
Benchmark 10-year German bund yields were three basis points from the record low reached yesterday as Nuremberg-based GfK SE (GFK) said its consumer-sentiment index will be 5.7 next month, versus economist estimates for it to match May’s initial reading of 5.6, damping demand for the safest European assets.
The yield was at 1.37 percent after falling to 1.351 percent yesterday. They are headed for a drop of five basis points this week. Yield on 30-year bonds were little changed at 1.97 percent, declining 12 basis points on the week.
A gauge of sentiment in the French economy rose to 90 from a revised 89 in April, the highest since November 2010, according to a statement from Insee, the national statistics office. Economists predicted a reading of 88, according to the median of 17 estimates gathered by Bloomberg News.
Spain’s government is analyzing “with all caution” requests from regional governments to help them regain access to capital markets, Deputy Prime Minister Soraya Saenz de Santamaria said.
Spanish 10-year bond yields climbed 15 basis points to 6.31 percent. The two-year yield rose as much as 16 basis points to 4.35 percent, the highest since Dec. 13.
German debt has returned 3.4 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. French securities have gained 5.3 percent, while France’s bonds due in 10 years or longer advanced 9.1 percent.
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