Bloomberg News

German Note Yield Falls to Zero as Spain Urges EU Aid for Banks

June 05, 2012

German bonds rose, pushing two-year note yields to zero, as Spanish Budget Minister Cristobal Montoro called for European funds to be used to shore up the nation’s banks.

Ten-year bunds pared a decline after a German report showed factory orders fell more in April than economists forecast, underpinning demand for the safest assets. Spanish bonds advanced as finance ministers and central-bank governors from the Group of Seven nations held a call to discuss the debt crisis. Belgium and the European Financial Stability Facility sold bills.

“Bunds have turned around quite sharply on the back of the Spanish headlines,” said Michael Leister, a rates strategist at DZ Bank AG in Frankfurt. “Today’s data flow has further supported bunds.”

Germany’s two-year yield was little changed at 0.015 percent at 4:08 p.m. London time after dropping to zero for the fourth time in the past five days. The price of the 0 percent note due in June 2014 was 99.97. The yield slid to a record-low minus 0.012 percent on June 1.

The 10-year bond yield was one basis point higher at 1.22 percent after climbing as much as four basis points. The all- time-low of 1.127 percent was set on June 1.

Spanish banks don’t need “excessive” amounts to recapitalize, and the question is “where that figure comes from,” Montoro said in an interview with Spanish broadcaster Onda Cero in Madrid. “That’s why it’s so important that the European institutions open up and help us achieve, help facilitate, that figure because we’re not talking about astronomical figures,” he said.

Factory Orders

German factory orders, adjusted for seasonal swings and inflation, dropped 1.9 percent from March, when they jumped a revised 3.2 percent, the Economy Ministry said in Berlin. Economists forecast a decline of 1.1 percent, according to a Bloomberg News survey.

G-7 finance ministers and central bank governors discussed Europe’s progress toward fiscal union on a call today, an official said.

“The G-7 counterparts reviewed developments in the global economy and financial markets and the policy response under consideration, including the progress towards financial and fiscal union in Europe,” the official said. “They agreed to monitor developments closely ahead of the G-20 summit in Los Cabos,” Mexico on June 18-19.

Spanish bonds rose for a fourth day, with the 10-year yield dropping 11 basis points to 6.3 percent. Italy’s 10-year yield declined one basis point to 5.65 percent.

Treasuries, Euro

The U.S. Treasury 10-year yield climbed three basis points to 1.55 percent, while the euro weakened 0.4 percent to $1.2455.

Germany’s borrowing costs have plunged to the lowest on record as investors sought the nation’s debt as a haven from Europe’s financial turmoil and concern mounted that Greece will exit the euro area after inconclusive elections on May 6.

There’s at least a one in three chance of Greece leaving the single currency within months of a June 17 election that may halt its international bailout, Standard & Poor’s said in a statement yesterday.

Germany plans to sell an additional 5 billion euros of five-year notes tomorrow. The previous auction of the securities on May 9 saw a record-low auction average yield of 0.56 percent. The five-year yield was at 0.37 percent today, after dropping to a record 0.295 percent on June 1.

Spain Sale

Spain is scheduled to sell bonds maturing between 2014 and 2022 on June 7. France will auction securities due between 2019 and 2060 the same day.

Belgium sold 3.52 billion euros of bills, exceeding its 3.2 billion-euro target. The debt agency said it sold 1.81 billion euros of three-month debt at an average yield of 0.213 percent, versus 0.201 percent at the previous auction on May 15. Investors also bought 1.71 billion euros of securities due in November at a 0.266 percent, compared with 0.226 percent.

The EFSF sold 1.99 billion euros of three-months bills.

The European Central Bank will keep its main refinancing rate at a record-low 1 percent at its monthly meeting tomorrow, according to the median estimate of 58 economists in a Bloomberg survey. Eleven predict a cut of 25 basis points, while one sees a reduction to 0.5 percent.

German bonds have returned 4.8 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish securities fell 4.2 percent, as Italy’s debt earned 8.5 percent, the indexes show.

To contact the reporters on this story: David Goodman in London at dgoodman28@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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