Bloomberg News

Europe Bonds Advance on ECB Stimulus as Erste Tumbles

July 04, 2014

ECB President Mario Draghi

Mario Draghi, president of the European Central Bank. Draghi said borrowing costs will stay at current levels for an extended period after introducing unprecedented stimulus last month. Photographer: Martin Leissl/Bloomberg

European bonds rose, pushing Irish yields to a record low, on speculation the European Central Bank’s monetary stimulus will support demand for the securities. Erste Group Bank AG (EBS) tumbled the most since 2009 and Brent fell.

The MSCI All-Country World Index of global shares was little changed at 433.65, following a six-day rally. Ireland’s 10-year yield fell four basis points to 2.3 percent. The Stoxx Europe 600 Index trimmed the biggest weekly gain since March. Erste slumped 16 percent in Vienna after forecasting a record loss. U.S. equity-index futures were little changed after the Dow Jones Industrial Average (INDU) topped 17,000 for the first time. Brent oil capped its worst week in six months. American markets were closed for a holiday.

ECB President Mario Draghi gave details yesterday of a targeted loans program, saying take-up may reach 1 trillion euros ($1.36 trillion). Italy is discussing a measure to give the government power to block an eventual sale or breakup of Telecom Italia’s unit, according to three people with knowledge of the matter.

“None of the arguments for a continued rally in the periphery have gone away,” said Jan Von Gerich, a fixed-income strategist at Nordea Bank AB in Helsinki. “The details yesterday were positive for the periphery. The pace of the rally will slow down but there is still room to go.”

The value of global equities climbed to a record $66 trillion yesterday after a report showed the U.S. added more jobs than forecast last month and the unemployment rate sank to an almost six-year low, signaling that the world’s largest economy is strengthening.

Yields Fall

Italian 10-year yields fell to 2.83 percent. German one-year rates slipped below zero for the first time in more than a year.

Canadian stocks extended this week’s gains, with the S&P/TSX Composite Index advancing 0.1 percent.

The Stoxx 600 posted a 1.8 percent increase this week.

Erste tumbled after saying it will post a loss on on rising bad debt charges and writedowns in Hungary and Romania. The provisions will be caused by new rules in Hungary forcing banks to refund loan fees, and by Romanian regulators’ push for faster bad-debt reduction, it said.

Hungary Laws

Hungary’s Parliament approved a law forcing banks refund borrowers on charges deemed unfair on as much as $28 billion in outstanding loans.

Erste shares traded in Prague led the Czech PX (PX) index 3.9 percent lower, the most since 2011. Hungary’s BUX index lost 0.9 percent, as OTP Bank Nyrt., the nation’s biggest lender, slid 1.7 percent.

EasyJet Plc gained 1 percent after Europe’s second-largest discount airline reported that it carried 10 percent more passengers in June than a year earlier.

JC Decaux SA rose 0.9 percent after HSBC Holdings Plc raised its recommendation on the French billboard company.

The MSCI Emerging Markets Index added less than 0.1 percent, trimming this week’s advance to 1.6 percent, the most in a month. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong rose 0.3 percent, while shares in Shanghai slipped 0.2 percent, falling for the first time in five days.

Sweden’s krona weakened for a fourth day as a report showed industrial production contracted 3.2 percent in May, after growing 2.8 percent in April. Economists predicted a 0.1 percent increase, based on the median estimate in a Bloomberg survey.

The yen rose against all of its major counterparts, appreciating 0.1 percent to 102.07 per dollar and gaining 0.3 percent versus the euro.

Brent dropped 0.3 percent to $110.64 a barrel, extending this week’s slide to 2.4 percent, the most for the period since Jan. 3.

(The yield on Spanish bonds was corrected in an earlier version of this story.)

To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editors responsible for this story: Stuart Wallace at swallace6@bloomberg.net Stephen Kirkland, Rita Nazareth


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