German Bunds Fall as Stocks Gains Sap Safety Bid; Ireland’s Bonds Advance
German bunds fell as stocks gained and U.S. economic reports surpassed economists’ forecasts, reducing demand for the perceived safety of government debt.
Bunds also pared a second monthly advance after German unemployment dropped for a 26th month in August and some Federal Reserve officials said they favored taking steps to boost the U.S. economy. Irish and Portuguese securities rose as German Chancellor Angela Merkel’s Cabinet approved proposed changes to the European Financial Stability Facility, which will allow it to buy bonds. Spain and France plan to sell debt tomorrow.
“Fixed-income markets are taking direction from the equity markets, where there is risk-on sentiment,” said Michael Leister, a fixed-income strategist at WestLB AG in London. “Risk markets are taking some comfort in the fact that the Fed discussed measures to support the economy. Stocks are up, and so bunds are falling.”
Two-year German yields climbed seven basis points to 0.73 percent as of 4:32 p.m. in London. They dropped to 0.54 percent on Aug. 18, the least since June 30, 2010. The 0.75 percent security due in September 2013 declined 0.14, or 1.40 euros per 1,000-euro ($1,443) face amount, to 100.045.
The 10-year yield was seven basis points higher at 2.22 percent, after falling to a record low 2.03 percent on Aug. 18.
The Stoxx Europe 600 Index gained for a third day, advancing 2.9 percent, and the Standard & Poor’s 500 Index rose 1.2 percent.
A few members of the Federal Open Market Committee favored a “more substantial move” beyond the pledge adopted to hold borrowing costs at record lows for the next two years, according to minutes of the Fed’s Aug. 9 meeting released yesterday. Stocks extended gains today after U.S. reports showed growth in factory orders that exceeded projections, and business activity expanded at a faster pace than forecast.
“Equities are pushing to the upside after the Fed minutes and so core fixed income is suffering,” said Eric Wand, a bond strategist at Lloyds Bank Corporate Markets in London.
The number of people out of work in Germany fell a seasonally adjusted 8,000 to 2.95 million, the Federal Labor Agency said in Nuremburg. Economists forecast a drop of 10,000, according to a Bloomberg News survey.
German debt still headed for a second monthly gain. Ten- year yields dropped 32 basis points in August as signs the U.S. economic recovery is losing momentum and concern the euro-region debt crisis is intensifying sparked demand for assets perceived to be havens.
Irish two-year yields fell to the lowest in six months after German ministers meeting in Berlin backed a reworked European Financial Stability Facility including sovereign bond- buying powers which will push up Germany’s share of EFSF loan guarantees to 211 billion euros from 123 billion euros.
The measures were agreed on by European leaders at a July 21 summit in a bid to stop a region-wide selloff in bonds after the debt crisis that engulfed Greece, Ireland and Portugal threatened to spread to Spain and Italy.
Ireland’s two-year yields fell 35 basis points to 7.60 percent after earlier sliding to 7.58 percent, the least since Feb. 24. Portugal’s two-year yields dropped 35 basis points to 12.04 percent.
Ireland’s 10-year rates have declined 2.28 percentage points this month, while Portugal’s 10-year yields have dropped 47 basis points as investors bet the two nations will be next in line to benefit from lower financing costs.
“The German approval of the expanded EFSF is positive for Portugal and Ireland,” said Norbert Aul, a European interest- rates strategist at RBC Capital Markets in London. “It makes it more likely that they will get more favorable financing terms once the second bail out for Greece is approved.”
Portugal’s bonds stayed higher as the government said it expects the economy to expand 1.2 percent in 2013, after shrinking 2.2 percent in 2011 and 1.8 percent in 2012.
Greek bonds declined after Finland’s Prime Minister Jyrki Katainen said his nation isn’t willing to abandon its goal of securing collateral in exchange for its commitment to a second Greek bailout package.
Ten-year Greek yields climbed nine basis points to 17.81 percent. They have surged 2.98 percentage points this month amid speculation other nations will ask for collateral deals in return for providing fresh assistance and that this will jeopardize the aid package.
Spain plans to sell up to 4 billion euros of bonds maturing in 2016 tomorrow, while France will auction bonds maturing in 2016, 2021 and 2041.
German government bonds have returned 5.7 percent this year, according to indexes compiled by the European Federation of Financial Analysts Societies and Bloomberg, while Treasuries have gained 7.5 percent. Irish bonds have returned 7.7 percent, while Portugal’s have lost 16 percent, the indexes show.
To contact the reporter on this story: Emma Charlton in London at email@example.com.