Germany’s 10-year bond yield was two basis points from a record low as concern the European debt crisis is worsening underpinned demand for the region’s safest securities.
Ten-year bunds erased an earlier decline after reports from three German states showed inflation eased in May. Bunds were also boosted by speculation Spanish banks will need a bailout and as Greece prepared to hold new elections next month after an earlier poll resulted in a stalemate. Spanish and Italian bonds rose, with the spread between Spain’s 10-year securities and similar-maturity bunds shrinking from a euro era record.
“Ongoing nervousness ahead of the Greek elections and mounting jitters about the health of the Spanish banking sector mean new lows in 10-year bund yields cannot be ruled out,” said Nick Stamenkovic, a strategist in Edinburgh at RIA Capital Markets Ltd., a broker for banks.
The German 10-year bund yield was little changed at 1.37 percent at 10:13 a.m. London time, after falling to a record 1.351 percent on May 24. The 1.75 percent bond due in July 2022 traded at 103.575.
The yield on Spain’s 10-year bond fell two basis points, or 0.02 percentage point, to 6.46 percent. The extra yield investors demand to hold the securities instead of their German counterparts narrowed by two basis points to 509 basis points after widening to 514 basis points, the most since the euro’s introduction in 1999.
Italy’s 10-year bond yield declined three basis points to 5.71 percent.
The inflation rate declined to 2 percent from 2.1 percent in Brandenburg, to 1.9 percent from 2 percent in Saxony and to 1.5 percent from 1.7 percent in North Rhine-Westphalia. In Hesse, it stayed at 1.9 percent.
German debt has returned 2.2 percent this month, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish securities dropped 3.6 percent, the indexes show.
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