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German Government Bonds Fall as Japan Yen Intervention Damps Safety Demand

German bonds fell as the Bank of Japan sold yen, curbing investors’ appetite for the euro- region’s safest assets.

The two-year note also retreated as a report showed consumer prices in the euro area rose 0.2 percent in August. Japan intervened in the currency market for the first time since 2004 after the yen reached a 15-year high against the dollar. The German government sold 4.4 billion euros ($5.7 billion) of 10-year bonds, while Portugal sold 750 million euros of 12-month Treasury bills.

“The Bank of Japan’s intervention gave risk assets a boost, and that spilled over and had a negative impact on bunds,” said David Schnautz, a fixed-income strategist at Commerzbank AG in London. “The bund auction was fairly strong, while the bill auction created some headwinds for Portugal.”

The yield on the bund, Europe’s benchmark security rose 3 basis points to 2.41 percent as of 4:24 p.m. in London. It reached 2.47 percent on Sept. 13, the highest since Aug. 11. The 2.25 percent security maturing in September 2020 fell 0.26, or 2.6 euros per 1,000-euro face amount, to 98.64. The two-year note yield also gained 3 basis points, to 0.76 percent.

Japan is trying to lower the value of its currency as signs the economic recovery may slow helped drive demand for the yen, threatening the country’s ability to sell its exports. The bund yield reached a record low of 2.087 percent on Aug. 31.

Investors bid for 1.8 times the amount of 10-year bunds on offer today, at an average yield of 2.39 percent. That compares with a so-called bid-to-cover of 1.6 at the previous sale of the same securities on Aug. 18. That auction garnered an average yield of 2.37 percent.

Portuguese Sale

Bunds pared their decline after a Portuguese 12-month treasury-bill auction attracted less demand than at a previous sale.

The bills were sold at a bid-to-cover ratio of 1.6 compared with 2.1 at the last auction of similar-maturity securities on Aug. 19. The Portuguese bills were allotted at an average yield of 3.37 percent compared with the previous 2.76 percent.

“An upshoot of some 60 basis points in 12-month paper from the last auction underpins how volatile short-end rates are, especially for the peripherals,” Schnautz said.

The extra yield investors demand to hold Portuguese 10-year debt instead of bunds widened 2 basis points to 336 basis points.

Auction Plans

Greece has no plans to sell bonds until next year at the earliest, the nation’s finance minister George Papaconstantinou said.

Greece intends to sell an unspecified amount of three-month Treasury bills next week, he said in an interview on Bloomberg Television’s “The Pulse” with Andrea Catherwood.

Greece sold 26-week Treasury bills yesterday. The nation’s banks bought 70 percent of the bills, Imerisia newspaper said today, without saying where it got the information.

The Greek yield spread with bunds increased 9 basis points to 909 basis points. The two-year yield slid 67 basis points, the most since Aug. 31.

“The short-end indeed seems to be well-protected as Greece is able to deliver in the austerity arena,” Commerzbank’s Schnautz wrote in an e-mail. “In the long-end, however, there is a clear moral-hazard risk persistently priced in.”

German bonds have returned 8.7 percent this year, compared with an 8 percent gain for U.S. Treasuries, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Portuguese debt has lost 4.5 percent, the indexes show.

To contact the reporter on this story: Keith Jenkins in London at Kjenkins3@bloomberg.net

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