Europe’s highest-rated government bonds rose this week, pushing German two-year note yields down to a record minus 0.052 percent, as investors sought havens from the euro-area’s financial turmoil.
Austrian, French, Belgian and Finnish two-year yields fell to all-time lows this week and those on similar-maturity Dutch debt dropped below zero for the first time. The European Central Bank said overnight deposits from financial firms slid to the lowest since December as it ended paying interest on excess cash after cutting interest rates. Italian notes rose this week even after Moody’s Investors Service cut the nation’s credit rating.
“With no credible end in sight to the euro-zone debt crisis, bund yields continue to trend lower with the short-end trading in negative territory,” said Brian Barry, an analyst at Investec Bank Plc in London. “Despite remaining largely risk averse, investors who need to pick up yield are increasing exposure to the semi-core sovereigns that have maintained their high ratings.”
Germany’s two-year yield fell three basis points, or 0.03 percentage point, this week to minus 0.042 percent at 5 p.m. London time yesterday. The zero percent note maturing in June 2014 gained 0.06, or 60 euro cents per 1,000-euro ($1,223) face amount, to 100.08.
The five-year yield declined three basis points this week to 0.31 percent after dropping to a record 0.285 percent.
Banks in the 17-nation euro region deposited 324.9 billion euros at the ECB on July 11, down from 808.5 billion euros the previous day, the Frankfurt-based central bank said. That’s the least since Dec. 21. Policy makers reduced the main refinancing rate to a record 0.75 percent on July 5 and cut the deposit rate to zero to encourage financial companies to lend to other institutions, companies and households.
The yield on Austrian two-year notes dropped to a record- low 0.019 percent yesterday, while the Dutch two-year rate fell to minus 0.008 percent. Similar-maturity Belgian yields dropped as low as 0.265 percent, French yields reached 0.10 percent and Finnish rates fell to 0.008 percent.
Italian two-year notes advanced this week even as Moody’s cut the nation’s credit rating by two steps to Baa2 and reiterated its negative outlook. The yield declined 24 basis points to 3.62 percent.
Germany is scheduled to sell 5 billion euros of two-year notes on July 18. Spain will auction securities due between 2014 and 2019 on July 19, and France plans to sell debt maturing between 2015 and 2017 the same day.
German bonds have returned 4 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts. Italian securities gained 8.4 percent, and Spanish bonds lost 4.4 percent.
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