Bloomberg News

German Bunds Rise Amid Cyprus Talks as U.S. Retail Sales Drop

April 12, 2013

German 10-year government bonds rose, paring their first weekly drop in five, as European finance ministers struggled to get consensus on Cyprus’s bailout and a drop in U.S. retail sales boosted demand for safer assets.

Benchmark bund yields fell by the most in two weeks. Cyprus President Nicos Anastasiades will seek an increase to the nation’s 10 billion-euro bailout from the European Union, according to a government official, who asked not to be identified. Dutch Finance Minister Jeroen Dijsselbloem said the size of the program won’t change. Portuguese bonds rose after euro-area ministers endorsed an extension to rescue loans for the nation and Ireland. Spanish bonds slid.

“There’s been a little bit of risk-off and that’s been reinforced after the U.S. retail sales,” said Allan von Mehren, chief analyst at Danske Bank A/S (DANSKE) in Copenhagen. “Bunds have been rallying, U.S. Treasuries too, and also in the peripheral countries, we’ve seen a bit of higher yields there.”

German 10-year bunds fell four basis points, or 0.04 percentage point, to 1.26 percent at 4:47 p.m. London time after sliding five basis points, the biggest drop since March 27. Yields are five basis points higher this week. The 1.5 percent security maturing February 2023 gained 0.4, or 4 euros per 1,000-euro ($1,306) face amount, to 102.22.

What the Cypriot president “is discussing with European officials is the possibility of increasing European funds, for growth and social cohesion,” government spokesman Christos Stylianides said in a statement e-mailed from Nicosia.

“The market is tinged with bearishness,” said Ciaran O’Hagan, head of European rates strategy at Societe Generale SA in Paris. “For the coming quarter, bund yields will stay low.”

Italian Yields

Dijsselbloem, who chaired a meeting of euro-area finance ministers in Dublin today, had dismissed questions of whether Cyprus would need as much as 6 billion euros more than the aid package agreed in Brussels last month. He said the size of the program won’t change and Cyprus will be able to fill other funding gaps as it restructures its two largest banks.

Yields on 10-year Spanish bonds increased two basis points to 4.69 percent after falling yesterday to 4.61 percent, the lowest since Nov. 17, 2010. Similar maturity Italian yields were little changed at 4.33 percent.

Italian politicians have failed to form a government since elections on Feb. 24-25 produced a hung parliament, producing a political deadlock that may limit the country’s scope to combat the longest recession in more than two decades and cut a debt load that the government said will reach 130.4 percent of gross domestic product this year, more than twice the euro-area limit.

Retail Sales

U.S. retail sales fell 0.4 percent in March, the biggest decline since June, after a 1 percent advance in February, Commerce Department figures showed today in Washington. The median forecast of 85 economists surveyed by Bloomberg called for an unchanged reading. Department stores and electronics dealers were among the weakest showings.

Gains in U.S. Treasuries pushed benchmark 10-year yields down by six basis points to 1.73 percent.

Irish 10-year yields were little changed at 3.89 percent, having dropped 33 basis points this month. They declined yesterday to 3.877 percent, the lowest since December 2006.

Portugal’s government bonds rose after Austrian Finance Minister Maria Fekter said euro-region finance ministers have agreed to a seven-year extension for loans to the nation.

The 10-year bond yield fell five basis points to 6.31 percent.

Volatility on Belgian bonds was the highest in euro-area markets followed by those of Germany and the Netherlands, according to measures of 10-year debt, the yield spread between two- and 10-year securities and credit-default swaps.

German bonds returned 0.5 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Irish debt securities gained 6.1 percent.

To contact the reporter on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net; Emma Charlton in London at echarlton1@bloomberg.net

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


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