German 10-Year Government Yields Climb on Global Economic Growth Optimism

German 10-year bunds fell on speculation that oil prices driven higher by unrest in Libya and the Middle East won’t be enough to derail the economic recovery.

The yield gap between two- and 10-year debt widened to the most in almost a week as Federal Reserve Bank of St. Louis President James Bullard said in an interview on CNBC that the U.S. economy “definitely looks brighter” and that oil prices would have to go “substantially higher” to be a concern to growth. Treasuries pared gains and the dollar was weaker. Ireland’s 10-year bonds fell for a fourth-straight day after its government was toppled at elections.

“The bunds reversed earlier gains after Bullard suggested the economy is recovering at a decent pace,” said Peter Chatwell, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “Given that many in the market view him as a Fed dove, what he said had a strong impact on the market.”

Bund yields rose two basis points to 3.17 percent as of 4:36 p.m. in London, after falling as low as 3.12 percent. The 2.5 percent security maturing in January 2021 fell 0.15, or 1.5 euros per 1,000-euro ($1,380) face amount, to 94.395. Two-year yields were two basis points lower at 1.52 percent.

The yield difference, or spread, between the two securities widened three basis points to 164 basis points, the most since Feb. 22.

Crude oil was little changed, reversing an earlier drop of as much as 1.2 percent. Crude oil futures for April delivery rose 7 cents to $97.95 a barrel at 10:51 a.m. on the New York Mercantile Exchange. Earlier it fell as low as $96.71.

Irish Election

“This has not gone on long enough,” Bullard, one of 12 regional Fed bank presidents, said in the interview. “You’d have to see if this shock is really persistent.”

Europe’s Stoxx 600 Index rose 0.9 percent and Germany’s DAX Index added 1.2 percent.

Ireland’s 10-year bond yields were little changed at 9.34 percent after rising as much as six basis points to 9.40 percent, the highest since Nov. 30. The country’s Feb. 25 election left Enda Kenny’s Fine Gael party in a position to form a coalition government with other lawmakers after the ruling Fianna Fail party suffered its worst-ever defeat. Kenny said he will seek to lower the 5.8 percent interest rate on the country’s aid loans from the European Union and the International Monetary Fund.

Debt Sales

“In the aftermath of the elections in Ireland there’s uncertainty about what’s going to happen there,” said Glenn Marci, a strategist at DZ Bank AG in Frankfurt. Marci said he is “a bit bearish” for German 10-year bunds “as equities have recovered quite well in Germany, that should weigh on the long end of the curve, where the safe haven flows have until now been supportive.”

Belgium’s treasury sold 1.575 billion euros ($2.18 billion) of bonds due September 2021 at an average yield of 4.245 percent, compared with 4.375 percent when it first sold 3 billion euros of the notes through banks on Jan. 18. Investors put in bids for 1.45 times the amount sold. The country also sold 1.122 billion euros of securities due in 2028 and 505 million euros of debt maturing in 2014, the debt agency said.

The German government sold 2.88 billion euros of 12-month zero-coupon Treasury bills.

Inflation in the 17-nation euro region quickened to 2.3 percent from 2.2 percent in December, the European Union’s statistics office in Luxembourg said today. While that’s below the initial estimate of 2.4 percent published on Jan. 31, the January reading is still the fastest since October 2008.

January marks the second straight month that the euro zone inflation rate breached the European Central Bank’s 2 percent ceiling. The Frankfurt-based central bank has kept its benchmark interest rate at a record low of 1 percent for almost two years and is forecast by economists to leave it unchanged again at its next policy meeting, on March 3.

Spanish Inflation

Three-month Euribor futures were little changed, with the implied yield at 1.93 percent. It has risen from 1.33 percent at the end of 2010, as traders added to bets that the ECB will boost borrowing costs. Eonia forwards show investors expect the bank will raise its benchmark rate by 25 basis points at its September meeting, according to Deutsche Bank AG data.

Spain’s inflation rate accelerated to 3.4 percent in February, the Madrid-based National Statistics Institute said in a statement today. That was the fastest rate in more than two years. The yield on the Spanish 10-year bond fell one basis point to 5.39 percent.

German government bonds handed investors a loss of 1.2 percent this year, compared with 1 percent for French securities and 0.9 percent for Belgian debt, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. U.S. Treasuries lost 0.1 percent and U.K. gilts 1.4 percent, over the same period, the indexes show.

To contact the reporters on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net; Emma Charlton in London at echarlton1@bloomberg.net;

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.