German 10-Year Bonds Fall After GDP Report Tops Economists' Forecasts
German 10-year bonds dipped, pushing the yield up from a record low, after a report showed the nation’s economy grew at a faster pace than economists forecast, easing demand for the safest assets.
The decline pared bunds’ third weekly gain. German second- quarter gross domestic product rose 2.2 percent from the first quarter, the fastest pace since records for a reunified Germany began in 1991. Economists predicted the economy would expand 1.3 percent. Data yesterday showed Greece’s economy contracted more than forecast, helping keep bund yields down amid renewed concern about budget shortfalls on Europe’s periphery.
“We’re prepared for a strong reading, but these headlines are just stunning,” said Kornelius Purps, a fixed-income strategist at UniCredit SpA in Munich. “An initial reaction in the bond market is a rise in yields. But I doubt they will go much further from here though, not when we have weakness in the U.S. and in peripheral countries.”
The yield on the 10-year German bund rose one basis point to 2.44 percent as of 8:50 a.m. in London. The 3 percent security due July 2020 fell 0.12, or 1.2 euros per 1,000-euro ($1,289) face amount, to 104.87.
Italian bonds fell before the Treasury sells up to 6 billion euros of five- and 15-year securities today. The yield on the 3 percent note maturing in June 2015 rose five basis points to 2.74 percent.
Two-Speed Economy
French 10-year bond yields also rose after a report showed the nation’s gross domestic product increased 0.6 percent in the three months through June, up from a revised rate of 0.2 percent in the first quarter. Economists predicted a 0.5 percent gain.
Spain’s economy expanded 0.2 percent from the previous quarter and contracted 0.2 percent from a year earlier, a separate report showed. The yield difference, or spread, between 10-year Spanish bonds and benchmark German bunds was little changed at 176 basis points, still the most since July 16.
The extra yield investors demanded for holding Irish securities instead of German bunds was also little changed at 288 basis points amid speculation central banks may buy again to stabilise the market.
Central banks bought Irish bonds yesterday, according to two traders who witnessed the transactions, following a week of speculation about the health of the nation’s banks.
Spanish bonds returned 1.5 percent this year and Irish debt 0.45 percent, compared with a 7.8 percent gain from German securities, according to indexes compiled by European Federation of Financial Analysts Societies.
To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net.
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