German Bunds Rise on Safety Demand; Portugal's Debt Pares Drop After Sale
The German 10-year bund rose for a third straight day as declines in peripheral euro-region bonds boosted demand for relative safety.
The difference in yield between the benchmark security and Portuguese and Irish bonds touched record highs on concern some European banks are struggling to overcome the region’s debt crisis. Portugal’s bonds pared their drop relative to bunds after the Iberian nation sold 1.04 billion euros ($1.32 billion) of 2013 and 2021 securities.
“Bunds appear to be well-supported by safe-haven demand,” said David Schnautz, a fixed-income strategist at Commerzbank AG in London. “There was slight relief that the Portuguese auctions went through, although the amount sold was rather low.”
The yield on the 10-year bund fell 2 basis points, or 0.02 percentage point, to 2.24 percent at 12:19 p.m. in London. The 2.25 percent security maturing in September 2020 increased 0.16, or 1.6 euros per 1,000-euro face amount, to 100.13. The yield on the two-year note rose 2 basis points to 0.59 percent.
The extra yield investors demand to hold Portuguese 10-year bonds compared with bunds rose 9 basis points to 364 basis points. It earlier reached a record 372 basis points, the most since Bloomberg began collecting the data in 1997, based on closing prices.
Portugal’s Auction
Portugal’s borrowing costs increased at an auction of 661 million euros of bonds maturing in 2013 and 378 million euros of bonds due in 2021.
The 5.45 percent securities due in September 2013 were issued at an average yield of 4.086 percent, the country’s debt management agency said. That compares with an average yield of 3.597 percent at a previous auction of the same maturity on June 9. The auction attracted bids for 1.9 times the amount offered, compared with a bid-to-cover ratio of 2.4 in June.
The 3.85 percent bonds maturing in April 2021 were issued at an average yield of 5.973 percent. That compares with an average yield of 4.171 percent at a previous auction of the same debt on March 10. Today’s auction attracted bids for 2.6 times the amount offered, compared with a bid-to-cover ratio of 1.6 in the March sale.
Germany sold 4.839 billion euros in 0.75 percent notes due in 2012 at an average yield of 0.58 percent, the Frankfurt-based Bundesbank said. Investors bid for 1.7 times the amount of debt on offer, compared with a bid-to-cover ratio of 1.6 times at the previous auction of the same securities on Aug. 11.
German’s Exports
The nation’s exports unexpectedly fell in July, indicating the global economic recovery may be losing momentum. Data from the Federal Statistics Office showed sales abroad fell 1.5 percent from June. The median forecast of 15 economists in a Bloomberg News survey was for exports to be unchanged.
Industrial production in Germany rose in July less than economists forecast. Output increased 0.1 percent from June, when it declined 0.6 percent, the Economy Ministry in Berlin said today. Economists had forecast a gain of 1 percent.
“Weaker German data helps underpin bunds and fits into the picture of a slower recovery,” Schnautz said.
German bonds have returned 9.6 percent this year, compared with a 8.4 percent gain for U.S. Treasuries, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts’ Societies. Portuguese debt has lost 4.6 percent, the indexes show.
Record Low Yield
Concern that some European nations won’t be able to repay their loans sparked a rally in government debt that sent the bund yield to a record low 2.087 percent on Aug. 31.
So-called peripheral euro-region bonds retreated relative to benchmark German securities even as European central banks bought Greek, Irish and Portuguese bonds. The deals were for about 10 million euros each and included debt maturing in 5 and 10 years, according to a trader involved in the sales.
The European Central Bank declined to comment when contacted by telephone today.
The Irish-German 10-year yield spread widened 7 basis points to 380 basis points, the most on record based on closing prices, according to Bloomberg generic data.
The Greek-German 10-year yield spread gained 15 basis points to 957 basis points. That’s the most based on closing prices since May 7, before the ECB and the European Union announced a rescue for the region worth 750 billion euros.
Greek debt has lost 19.7 percent and Irish debt has given up 2.7 percent this year, according to the EFFAS indexes.
To contact the reporter on this story: Keith Jenkins in London at Kjenkins3@bloomberg.net
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