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German Government Bonds Post First Drop in Six Weeks; Growth Concern Eases
German government bonds posted their first weekly decline since July after U.S. jobs figures and the euro region’s service and manufacturing data beat economist predictions, damping concern the global recovery is faltering.
Ten-year yields rose to a three-week high yesterday after a report showed U.S. companies added 67,000 jobs in August. The median estimate of economists surveyed by Bloomberg News called for a gain of 40,000. The European Central Bank on Sept. 2 raised its economic forecasts for the region, and its President Jean-Claude Trichet said a double dip scenario is “not in the cards.”
“Investors are reappraising their positions,” said Peter Chatwell, an interest-rate strategist at Credit Agricole Corporate & Investment Bank in London. “Bond yields are close to record lows, and to justify buying them you have to be buying into a double-dip. But data we saw this week didn’t quite gel with that story.”
German 10-year bund yields climbed X15 basis points in the week as of 5 p.m. in London yesterday. They reached 2.37 percent yesterday, the highest since Aug. 19. The 30-year yield rose 28 basis points, the biggest weekly advance since May 8, 2009.
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.
Positive Data
Data last week helped overcome concern that slowing growth in the U.S. would hamper the recovery around the world, helping the 10-year bund yield recover from its record low of 2.087 percent on Aug. 31.
The ECB said it now expects gross domestic product for 2010 to be between 1.4 percent and 1.8 percent, up from previous forecast range between 0.7 percent and 1.3 percent. Growth will be between 0.5 percent and 2.3 percent in 2011, it said, revising a previous estimate of 0.2 percent to 2.2 percent.
German bonds may rise next week on speculation factory orders grew at a slower pace in July. The Economy Ministry in Berlin will say on Sept. 7 orders increased 0.5 percent from June, when they rose 3.2 percent, according to a Bloomberg survey.
Most so-called peripheral euro-region bonds advanced relative to benchmark German bunds. The yield spread between Spanish and German 10-year bonds narrowed 19 basis points this week to 167 basis points, while the Irish-German spread narrowed declined 13 basis points to 339 basis points.
Bunds and U.K. gilts have returned 9.3 percent this year, compared with 8.2 percent for U.S. Treasuries, according to indexes compiled by the European Federation of Financial Analysts’ Societies and Bloomberg.
To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net; Matthew Brown in London at mbrown42@bloomberg.net
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