German Bund Yield Climbs to One-Week High as Central Bank Raises Forecast
German 10-year bonds fell, sending yields to their highest in almost two weeks, as the European Central Bank said the economy will expand faster than previously estimated, damping demand for the safest government securities.
Thirty-year German bonds also declined after reports showed European exports surged the most on record and corporate spending rebounded from a two-year slump in the second quarter. Euro-region policy makers extended emergency lending measures for banks into 2011 and held the key interest rate at a record low of 1 percent. ECB President Jean-Claude Trichet said a double dip in the economy wasn’t likely.
“Bond yields are pushing higher as Trichet doesn’t sound as dovish as some people might have hoped, and it didn’t help his comments followed economic numbers that beat forecast,” said Eamonn Reilly, a trader at Davy Capital Markets in Dublin. “The market is very long bonds and some kind of consolidation is overdue.”
German 10-year yields were six basis points higher at 2.28 percent as of 5 p.m. in London. The 2.25 percent security due September 2020 fell 0.565, or 5.65 euros per 1,000-euro ($1,283) face amount, to 99.710.
The yield reached 2.31 percent earlier, the highest since Aug. 20. It reached a record low of 2.087 percent on Aug. 31.
Two-year yields were one basis point lower at 0.61 percent, while 30-year yields climbed nine basis points to 2.87 percent.
The ECB’s Governing Council set the benchmark lending rate at 1 percent for a 17th month, as predicted by all 57 economists in a Bloomberg News survey.
Facing ‘Headwinds’
Trichet said today the ECB will lend financial institutions seven-day and one-month funds at a fixed interest rate until at least Jan. 18. The central bank will also offer banks three- month loans in October, November and December. The interest rate on those funds will be linked to the ECB’s average benchmark rate over the maturity of the loan.
“The global economy still faces some headwinds and they are on the cautious side in terms of liquidity,” said Eric Wand, a fixed-income strategist in London at 4Cast Ltd., a research company that counts central banks among its subscribers.
The economy will grow between 1.4 percent and 1.8 percent this year, compared with a previous forecast of 0.7 percent to 1.3 percent, Trichet said at a press conference in Frankfurt following the announcement. Growth will be between 0.5 percent and 2.3 percent in 2011, he said, revising a previous estimate of 0.2 percent to 2.2 percent.
‘Stronger Than Expected’
“Recent data has been stronger than expected,” Trichet said. “Further ahead, the recovery should proceed on a moderate pace.”
Spain sold 3.3 billion euros of 2015 notes, while France issued 9 billion euros of securities including 2020 bonds at a record low yield.
Most so-called peripheral euro-region bonds rose relative to benchmark German bunds. The yield spread between Spanish and German 10-year bonds narrowed nine basis points to 172 basis points, while the Greek-German spread was at 899 basis points from 910 points, the its first time below 900 basis points since Aug. 24.
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.
German government bonds handed investors 3.9 percent in August, the most since November 2008 in the wake of Lehman Brothers Holdings Inc.’s collapse, 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.
Taking Hold
More recent data is showing the recovery is taking hold. Exports from the 16-nation euro region jumped 4.4 percent from the first quarter, the biggest gain since data were first compiled in 1995, while corporate spending rose 1.8 percent, ending eight quarters of contraction, the European Union’s statistics office in Luxembourg said today. Gross-domestic- product growth accelerated to 1 percent, in line with an Aug. 13 estimate, from a revised 0.3 percent in the previous quarter.
The number of Americans seeking jobless benefits fell last week to a level that indicates the labor market has not improved this year even as the economy expanded.
Initial jobless claims fell by 6,000 to 472,000 in the week ended Aug. 28, in line with the median forecast of economists surveyed by Bloomberg News, Labor Department figures showed today in Washington. Applications exceeded the 463,000 average so far this year.
To contact the reporter on this story: Matthew Brown in London at mbrown42@bloomberg.net
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