Bloomberg News

German Bunds Rise Third Day After Debt Sale; Portugal Notes Gain

January 16, 2013

Germany’s government bonds advanced a third day as demand increased as the nation sold 4 billion euros ($5.3 billion) of new 10-year debt.

Two-year notes rose for the first time in a week as Chancellor Angela Merkel’s government lowered its growth forecast, boosting the appeal of the region’s safest assets. Spanish bonds fell after Luxembourg Prime Minister Jean-Claude Juncker said the strength of the euro threatened the European economy. Portuguese two-year notes jumped as borrowing costs declined at a bill sale.

“The amount sold at the auction was good, with bids above the average from last year,” said Mathias Van Der Jeugt, a fixed-income strategist at KBC Bank NV in Brussels. “The recent increase in German yields has made them relatively attractive.”

The yield on Germany’s 1.5 percent bond due in September 2022 fell one basis point, or 0.01 percentage point, to 1.50 percent at 4:27 p.m. in London. The price rose 0.07, or 70 euro cents per 1,000-euro face amount, to 100.025. The yield climbed to 1.61 percent on Jan. 11 from 1.32 percent at the end of 2012.

The two-year yield dropped one basis point to 0.13 percent after rising eight basis points during the previous four days.

Investors submitted bids for 1.7 times the amount of new 1.5 percent bonds due in February 2023 allotted today, compared with 1.51 times at the previous auction of 10-year securities on Nov. 21. Germany sold the bonds at an average yield of 1.56 percent, versus 1.40 percent on Nov. 21.

Forecast Cut

The Economy Ministry said in its annual report released today that German gross domestic product growth will slow to 0.4 percent this year from 0.7 percent in 2012. The previous forecast for 2013 was 1 percent.

“We assume that the phase of weakness this winter will be overcome in the course of the year and that our economy gains traction again,” Economy Minister Philipp Roesler told reporters in Berlin.

Spanish bonds dropped as Juncker, who leads the group of euro-area finance ministers, said the currency’s 8.5 percent gain versus the dollar in the past six months has left it “dangerously high,” and is posing a fresh threat to the European economy, He spoke late yesterday at an annual gathering of business leaders in Luxembourg.

Spain’s 10-year bond yield increased two basis points to 5.04 percent.

Portugal Sale

Portugal’s borrowing costs fell as the government sold a combined 2.5 billion euros of three-, 12- and 18-month bills in its first auction of 2013.

The debt agency said it sold 1.2 billion euros of 12-month securities at an average yield of 1.609 percent, the lowest since April 2010, and down from 2.10 percent at the previous auction on Oct. 17. Investors bought 1 billion euros of 18-month bills at an average yield of 1.963 percent, the least since it started selling the debt in April.

The Portuguese two-year yield declined 13 basis points to 3.54 percent.

French bonds were little changed before the government sells securities due in January 2015, April 2017 and May 2018 tomorrow. It will also offer inflation-protected debt. The 10- year yield was at 2.13 percent.

German government bonds handed investors a loss of 1.3 percent this month through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spain’s gained 1.9 percent and Italy’s rose 1.8 percent.

To contact the reporters on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net David Goodman in London at dgoodman28@bloomberg.net;

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net


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