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German Bunds Rise a 2nd Day on Haven Demand; Spanish Bonds Fall

August 23, 2012

German government bonds advanced for a second day as signs economic growth in the euro area has stalled boosted demand for the safest assets.

Spanish securities dropped, pushing 10-year yields up by the most in almost three weeks, after a purchasing managers’ index showed the region’s service sector shrank in August, and German manufacturing contracted for a sixth month. The spread between German and Spanish 10-year rates widened beyond five percentage points for the first time in a week. Ireland sold 1.02 billion euros ($1.28 billion) of amortizing bonds, as the nation took another step back into credit markets.

“They are very sluggish figures for Europe,” said Elisabeth Afseth, a fixed-income analyst at Investec Bank Plc in London. “They are below that magical 50 level on the PMIs. It highlights the problems there are in Europe and the general weaknesses. It favors the safe havens more than anyone else.”

Germany’s 10-year bund yield fell 10 basis points, or 0.1 percentage point, to 1.36 percent at 3:25 p.m. London time, the lowest level since Aug. 10. It dropped 11 basis points yesterday. The 1.75 percent bond due in July 2022 rose 0.905, or 9.05 euros per 1,000-euro face amount, to 103.535.

Afseth said she expects the bund yield to fall to 1.3 percent by year-end.

A gauge of the euro-area services industry was 47.5 from 47.9 in July, London-based Markit Economics said today. A composite index based on services and manufacturing rose to 46.6 from 46.5, Markit said. Readings below 50 indicate contraction.

Spanish Bonds

Spanish 10-year government bonds declined for a second day, pushing the extra yield investors demand to hold the securities instead of similar-maturity German bunds by 22 basis points to 504 basis points, the most since Aug. 17.

Spain’s 10-year yield was 12 basis points higher at 6.40 percent. Two-year yields climbed 17 basis points to 3.79 percent.

German Chancellor Angela Merkel hosts French President Francois Hollande in Berlin today as officials look for ways to stave off an immediate crisis before a report due next month from Greece’s international creditors on the health of its finances.

Greek Prime Minister Antonis Samaras is due to follow Hollande to Germany’s capital tomorrow then travel on to Paris on Aug. 25. He used an interview published yesterday in Germany’s best-selling Bild newspaper to call for more time to carry out policy changes to address his country’s debt woes.

Greek bonds maturing in February 2023 were little changed, leaving the yield at 23.81 percent, after dropping to 23.67 percent, the lowest level since May 9.

Irish Sale

Ireland’s National Treasury Management Agency sold five amortizing bonds maturing from 15 years to 35 years at a weighted average yield of 5.91 percent.

An amortizing facility is where the principal of the bond is paid in installments over the life of the security instead of in full at maturity.

The yield on Ireland’s bond maturing in October 2020 fell eight basis points to 5.92 percent, after dropping below the 6 percent level for the first time in 22 months on Aug. 21.

Germany’s gross domestic product expanded 0.3 percent, from 0.5 percent in the first three months of the year, the Federal Statistics Office in Wiesbaden said today, confirming an initial estimate published Aug. 14. A separate German manufacturing index was at 45.1, Markit said, indicating a sixth month of contraction.

Fed Stimulus

Bunds also rose as Treasuries extended a rally after Federal Reserve policy makers signaled readiness to boost record stimulus unless they are convinced the U.S. economy is poised to rebound.

Many members of the policy-setting Federal Open Market Committee said further action would probably be needed “fairly soon” without evidence of “substantial and sustainable” improvement in the recovery, according to minutes of the July 31-Aug. 1 meeting released yesterday in Washington.

German government bonds returned 3.2 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish securities fell 1.8 percent.

To contact the reporters on this story: Neal Armstrong in London at; David Goodman in London at

To contact the editor responsible for this story: Paul Dobson at

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