Bloomberg News

German Bonds Fall on Bets Crisis Response Gaining Pace After ECB

June 06, 2012

German bonds fell, pushing up 10-year yields by the most in eight weeks, as speculation European policy makers are accelerating plans to stem the spread of the debt crisis damped demand for the safest assets.

Spain’s 10-year bonds climbed for a fifth day after European Central Bank President Mario Draghi said officials stand ready to act as the region’s growth outlook worsens. Two- year German yields jumped from as low as 0.002 percent after the central bank left its benchmark interest rate at 1 percent, as predicted by most economists in a Bloomberg News survey.

There’s “wishful thinking that a big coordinated response lies around the corner,” said John Wraith, a fixed-income strategist at Bank of America Merrill Lynch in London. “Today’s move is little more than covering of risk-off positions and taking profit” after last month’s rally in German securities, he said.

German 10-year yields rose 11 basis points, or 0.11 percentage point, to 1.32 percent at 4:27 p.m. London time. That’s the biggest increase since April 11. The 1.75 percent securities maturing in July 2022 dropped 1.10, or 11 euros per 1,000-euro ($1,251) face amount, to 104.005.

Two-year rates climbed five basis points to 0.06 percent.

Draghi said the ECB would extend its offerings of three- month unlimited cash into next year. He also said he’s on a working group looking at the euro’s future. European representatives on a conference call of Group of Seven finance ministers and central bank governors yesterday “said they will speed up their efforts to resolve” the debt crisis, Japanese Finance Minister Jun Azumi told reporters in Tokyo.

Spanish Notes

Bunds are falling on reports of a “master-plan that will see greater fiscal integration and more growth measures,” said Norbert Aul, a fixed-income strategist at Royal Bank of Canada in London.

Spanish two-year notes advanced for a third day even after a report showed the nation’s industrial production fell the most in more than two years in April and after Draghi indicated another round of three-year funding for banks wasn’t imminent.

The yield on the securities tumbled 17 basis points to 4.55 percent. The nation’s 10-year rate declined three basis points to 6.28 percent.

Output at factories, refineries and mines adjusted for the number of working days slid 8.3 percent from a year earlier, the biggest contraction since October 2009, the National Statistics Institute in Madrid said today. German industrial production fell 2.2 percent in April from the previous month, the Economy Ministry in Berlin said.

German Auction

Germany’s borrowing costs plunged to record lows on June 1 as investors sought the nation’s debt as a haven from Europe’s financial turmoil after Spanish yields surged and concern mounted that Greece will exit the euro area. Gross domestic product in the 17-nation euro region was unchanged in the three months through March, after contracting 0.3 percent in the fourth quarter, the European Union’s statistics office in Luxembourg said today.

Germany’s five-year borrowing costs fell to an all-time low of 0.41 percent today at an auction of 3.98 billion euros of notes due in April 2017 today. The government received bids for 6.2 billion euros of the securities, compared with a maximum sales target of 5 billion euros, according to a statement from the Bundesbank.

The five-year yield increased nine basis points to 0.47 percent. It slid to a record 0.30 percent last week.

Italy’s two-year note yield dropped 17 basis points to 3.91 percent.

Danish Volatility

Volatility on Danish government bonds was the highest in developed markets today, according to measures of 10-year bonds, two- and 10-year yield spreads and credit-default swaps.

Denmark sold 3.35 billion kroner ($560 million) of its 3 percent bond due 2021 at a yield of 1.04 percent versus 1.51 percent on May 8, the Copenhagen-based central bank said today in a statement.

The yield on Portuguese two-year notes plunged 65 basis points to 10.32 percent as the nation’s borrowing costs fell at a sale of 1.5 billion euros of six- and 12-month bills.

Spain is scheduled to sell bonds maturing in October 2014, October 2016 and January 2022 tomorrow, while France plans to auction securities due between 2019 and 2060.

German debt has returned 4.8 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish securities have lost 3.7 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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