German Bund Yields Near Record Low Before U.S. Economic Data
Sept. 1 (Bloomberg) -- Charles Morris, a fund manager overseeing about $2.5 billion at HSBC Global Asset Management’s Absolute Return fund, talks about his decision to sell long-term bond holdings on Aug. 27 and agricultural commodities yesterday. Morris, speaking with Mark Barton on Bloomberg Television's "Countdown," also comments on the outlook for gold. (Source: Bloomberg)
German government bonds snapped a two-day advance, pushing the 10-year yield up by the most in nearly four months, as surging stock markets cut demand for the safety of fixed income.
Thirty-year yields also rose as Chinese and Australian reports calmed concern that the global economic recovery is stalling. Manufacturing in the U.S expanded at a faster pace than forecast in August. Bunds stayed lower even as subsequent data showed retail sales in Germany and U.S. employment unexpectedly dropped. Demand rose at a sale of 1 billion euros ($1.2 billion) of Portuguese bills today.
“Economic data from China and Australia appeared to have improved risk appetite that pushed stocks higher and bonds lower, but we also had weak data today which failed to move yields lower,” said David Schnautz, a fixed-income strategist at Commerzbank AG in London. “I think the market is just stretched and people are looking for an excuse to sell.”
German 10-year bond yields rose 11 basis points to 2.23 percent at 4:05 p.m. in London, after advancing by 13 basis points earlier, their biggest one-day gain in yield since May 10. The 2.25 percent security due September 2020 fell 1.0, or 10 euros per 1,000-euro face amount, to 100.19. Two-year yields were 4 basis points higher at 0.67 percent and 30-year yields climbed 13 basis points to 2.79 percent.
Stock Surge, China
The Stoxx Europe 600 Index jumped as much as 2.7 percent, the most in more than three months, and the MSCI World Index added 2.7 percent. China’s purchasing managers’ index rose to 51.7 from 51.2, exceeding forecasts, while Australia’s economy expanded 1.2 percent from the first quarter, according to government data released today.
A private report showed companies in the U.S. unexpectedly cut 10,000 workers in August, according to figures today from ADP Employer Services. The median estimate of 35 economists surveyed by Bloomberg News called for a gain of 15,000. The Institute for Supply Management’s factory index rose to 56.3 from 55.5 in July, while economists forecast a decline to 52.8.
The bonds of so-called peripheral euro-region nations rose relative to benchmark German bunds. The extra yield investors demand to hold Irish 10-year bonds instead of their German equivalents fell 5 basis points to 351 basis points, after reaching a record 358 points yesterday. The Spanish-German 10- year yield spread narrowed 10 basis points to 183 basis points.
Bond Rally
Bunds, U.S. Treasuries and U.K. gilts rallied last month on mounting evidence that America’s economic recovery is faltering. The U.S. economy grew at an annual 1.6 percent pace in the second quarter, according to an Aug. 27 report, down from an earlier estimate of 2.4 percent. Manufacturing probably expanded in August at the slowest pace in almost a year, the Institute for Supply Management’s factory index is forecast to show today.
German government bonds handed investors 3.9 percent in August, the most since November 2008, two months after Lehman Brothers Holdings Inc. collapsed, according to indexes compiled by Bank of America Corp.’s Merrill Lynch unit. U.S. Treasuries returned 2 percent, while U.K. gilts earned 4.7 percent.
Treasuries and gilts also fell today, with the U.S. 10-year yield gaining 5 basis points to 2.52 percent and equivalent U.K. yields adding 4 basis points to 2.88 percent.
Portuguese Sale
Portuguese bonds rose, narrowing the 10-year yield spread with bunds by five basis points to 328 basis points.
The country sold 500 million euros of bills due in March and 512 million euros of bills due in August. The securities due March 18, 2011, were issued at an average yield of 2.045 percent, the country’s debt management agency said. That compares with an average yield of 1.96 percent at a previous auction of six-month bills on Aug. 4. The auction attracted bids for 2.4 times the amount offered, the same bid-to-cover ratio as in August.
The bills due Aug. 19, 2011, were issued at an average yield of 2.756 percent. That compares with an average yield of 2.727 percent at a previous auction of 12-month bills on Aug. 18. Today’s auction attracted bids for 2.1 times the amount offered, compared with a bid-to-cover ratio of 1.8 in the August sale.
The yield on 30-year French bonds rose 14 basis points to 3.18 percent before the government sells bonds maturing in 2041 tomorrow. Bonds to be auctioned on the same day also include those due in 2016, 2020 and 2026.
To contact the reporter on this story: Matthew Brown in London at mbrown42@bloomberg.net Anchalee Worrachate in London at aworrachate@bloomberg.net;
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