German 10-year government bond yields stayed near the lowest in three weeks before an offering today from the European Central Bank of three-month loans that analysts say may determine demand for sovereign debt.
Greek 10-year bonds advanced amid speculation central banks stepped up their asset purchases. Germany plans to auction 6 billion euros ($7.3 billion) of two-year securities. The country’s Federal Labor Agency said the number of people out of work fell 21,000 in June, less than the 30,000 predicted in a Bloomberg survey.
“It’s important to see how much liquidity in the short- term markets change and if we see a reduction in liquidity this could take out some of the premium priced into bond prices,” said Karsten Linowsky, a fixed-income strategist at Credit Suisse AG in Zurich. “We are at such low levels it’s not clear we will see big demand” at the German auction, he said.
The yield on the bund was at 2.56 percent as of 8:46 a.m. in London, after dropping to 2.53 percent yesterday, the lowest since June 9. The yield dropped 53 basis points from 3.09 percent on March 31. The 3 percent security maturing in July 2020 fell 0.04, or 40 euro cents per 1,000-euro face amount, to 103.82.
The two-year note yield was little changed at 0.54 percent.
Euro-region central banks stepped up purchases of Greek, Portuguese and Irish government securities yesterday, traders said.
The purchases focused on maturities of five years and below, with some buying interest also shown for longer-maturity Greek bonds, said the traders, who declined to be identified because the transactions are confidential.
Germany’s sale of two-year notes should be a success as an increase in risk aversion boosts investor demand for the safest assets, according to ING Groep NV.
“Given the backdrop, the auction should not be a problem as this type of safe paper is exactly what the market is migrating toward,” Padhraic Garvey, head of developed-market strategy at ING in Amsterdam, wrote in a client note today.