Bund Yield 3 Basis Points From Record Low Before Auctions

Dutch bonds rose for the first time in four days as the nation sold 2 billion euros ($2.63 billion) of debt amid optimism the collapse of its government yesterday won’t derail efforts to implement budget cuts.

Two-year Dutch yields dropped the most in almost five months as the government auctioned securities due in 2014 and 2037. Spanish bonds gained as the country sold close to its maximum target at a bill sale. German bunds fell, pushing 10- year yields up from yesterday’s record low, as stocks gained and a report showed U.S. new home sales were stronger than economists forecast, undermining demand for the safest assets.

“We are comfortable now that this is out of the way, this is not the start of a sustained spread widening,” David Schnautz, a fixed-income strategist at Commerzbank AG in London, said of the Dutch bond sale. “There’s a lot of hype regarding the Netherlands and this was exacerbated by the looming supply. The commitment to fiscal prudence is very high across the Dutch political spectrum.”

The Dutch two-year yield declined 16 basis points, or 0.16 percentage points, to 0.36 percent at 4:24 p.m. London time after falling as much as 18 basis points, the most since Nov 30. The 15 percent security due in January 2014 rose 0.265, or 2.65 euros per 1,000-euro face amount, to 101.100.

The Dutch 10-year yield declined nine basis points to 2.33 percent after advancing to 2.47 percent, the highest level since March 28. The extra yield investors demand to hold the securities instead of similar-maturity German bunds shrank 15 basis points to 64 basis points after closing yesterday at the widest since March 2009.

Dutch Sale

The Dutch finance ministry sold 1 billion euros of 3.75 percent bonds due July 2014 at an average yield of 0.523 percent, and 995 million euros of 4 percent bonds due January 2037 at 2.782 percent.

The Sox Europe 600 Index (SXXP) gained 1.1 percent, and the euro strengthened versus all but two of its major counterparts.

Spanish bonds advanced as the nation sold 1.9 billion euros of bills, compared with a maximum target of 2 billion euros. The three-month securities were auctioned at an average rate of 0.634 percent, versus 0.381 percent on March 27, the Bank of Spain said. The government sold six-month bills at 1.58 percent, up from 0.836 percent.

Spanish two-year note yields declined 18 basis points to 3.4 percent.

Italian notes also gained as the nation auctioned 2.5 billion euros of zero-coupon notes. The two-year yield dropped 10 basis points to 3.29 percent.

Seeking Support

Dutch Prime Minister Mark Rutte told politicians to face up to the country’s economic woes to ensure the Netherlands evades the debt crisis, as opposition lawmakers said there was no need to stick to budget targets.

Rutte, addressing parliament in The Hague less than 24 hours after he tendered his Cabinet’s resignation, said the need to adopt measures “hasn’t diminished” after Geert Wilders’s Freedom Party pulled out of budget talks on April 21, ending its support for the minority government.

Since Europe’s debt crisis began, leaders have been ousted in Ireland, Portugal, Greece, Italy, Spain, Slovenia, Slovakia and Finland.

`Headline Risk'

German 10-year yields rose six basis points to 1.7 percent after dropping to an all-time low of 1.633 percent yesterday. Five-year yields climbed six basis points to 0.67 percent.

“We’re so close to records that it’s difficult to just move along, so I’m not surprised to see a rise in bond yields,” said Marius Daheim, a senior fixed-income strategist at Bayerische Landesbank in Munich. “The headline risk from the European debt crisis will probably still support the market. I don’t see any major changes there.”

U.S. new home sales declined 7.1 percent to an annual rate of 328,000 in March, the Commerce Department said in Washington. Economists forecast a rate of 319,000, according to a Bloomberg News survey. The median selling price increase from a year ago, the data showed.

Germany’s central bank isn’t preparing for the euro’s demise, Bundesbank President Jens Weidmann said, rejecting comments by billionaire George Soros in Berlin on April 12.

Bund Futures

German bund futures fell 0.4 percent to 140.61, after rising to a record 141.37 yesterday.

“In technical terms, there is nothing to prevent a continuation of the bund future’s ascent,” Viola Stork and Ulrich Wortberg, fixed-income analysts at Helaba Landesbank Hessen-Thueringen in Frankfurt, wrote in a note to investors. The next resistance level is around 141.50, they wrote. The first supports, where buy orders may be, are located at 140.44 and 139.82, according to the analysts. Resistance refers to an area where buy orders may be grouped.

German bonds returned 1.4 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Dutch securities dropped 0.4 percent, and Spain’s slid 2.1 percent, the indexes show.

Volatility in Dutch securities was the highest of 24 developed-nation markets, followed by Spain and Germany, according to measures of 10-year bonds, two- and 10-year yield spreads and credit-default swaps compiled by Bloomberg.

To contact the reporters on this story: Emma Charlton in London at echarlton1@bloomberg.net; Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net

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

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