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German Bunds Decline After Portugal's Bond Sale Is Considered a Success
German government bonds snapped a two-day rally as demand held up at an auction of Portuguese notes, boosting stocks and limiting bids for the safest assets.
The drop pushed yields on two-year German securities up from within a basis point of their lowest since June as investors gained confidence to seek higher returns elsewhere. Portugal’s bond-yield spreads over bunds narrowed as the nation sold 1.04 billion euros ($1.32 billion) of 2013 and 2021 debt.
“In the short term, it looks like risk is attempting to get back in,” said Eric Wand, a fixed-income strategist in London at 4Cast Ltd., a research company that counts central banks among its subscribers. “Spreads widened considerably into the Portuguese auction, and its success provided a good excuse to take profits” and sell so-called core-market bonds, he said.
The yield on the 10-year bund rose 3 basis points, or 0.03 percentage point, to 2.29 percent at 4:20 p.m. in London. The yield on the two-year note rose 6 basis points to 0.63 percent, after being as low as 0.56 percent. It dropped to 0.55 percent yesterday, the least since June 30.
The Stoxx Europe 600 Index gained 1 percent after earlier losing as much as 0.4 percent. The Standard & Poor’s 500 Index gained 0.9 percent, after slumping by 1.2 percent yesterday.
The extra yield investors demand to hold Portuguese 10-year bonds compared with bunds was little changed at 350 basis points after climbing earlier to a record 372, the most since Bloomberg began collecting the data in 1997, based on closing prices.
Yearly Return
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.
Portugal’s sale of 5.45 percent securities due in September 2013 attracted bids for 1.9 times the amount offered, compared with a bid-to-cover ratio of 2.4 in June. The bid-to-cover ratio on the 3.85 percent bonds maturing in April 2021 rose to 2.6 times, compared with 1.6 in March.
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.
Irish 10-year securities rose relative to their German counterparts after the nation’s government said split Anglo Irish Bank Corp., which was nationalized last year, will be split into two banks and part of it wound down or sold.
German Exports
The spread with bunds narrowed 3 basis points to 370 basis points, after climbing to a record 377 basis points earlier.
Germany’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.
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.
“The yield levels we’re seeing right now are hard to justify, that’s particularly true of the bund market,” said Marius Daheim, a senior fixed-income strategist at Bayerische Landesbank in Munich.
The Greek-German 10-year yield spread gained 7 basis points to 950 basis points after earlier widening based on closing prices to the most 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: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net
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