German bunds gained, with 10-year yields reaching a three-week low, as the European Central Bank was said to wait until a court ruling before unveiling details of a plan to buy bonds of the region’s most-indebted nations.
Italian and Spanish securities fell as two ECB officials said the Frankfurt-based central bank may wait for a decision from Germany’s Constitutional Court before purchasing the nations’ debt. Chancellor Angela Merkel, speaking after a meeting with Greek president Antonis Samaras in Berlin, said no single action will solve the crisis. German bunds pared gains after Reuters reported the ECB is considering setting yield band targets as part of its asset-purchase plan.
“We’re heading towards September with key issues in the euro region coming to a head,” said Padhraic Garvey, the head of developed markets debt at ING Groep NV in Amsterdam, referring to next month’s ECB meeting, the troika’s visit to Greece and parliamentary elections in the Netherlands. “You just need one of those issues to go bad and we’re back into dangerous territory. My preference is to be long bunds.” A long position is a bet an asset will rise.
Germany’s 10-year yields fell two basis points, or 0.02 percentage point, to 1.36 percent at 4:46 p.m. London time, after reaching 1.32 percent, the lowest since Aug. 3. The 1.75 percent bond due in July 2022 rose 0.17, or 1.70 euros per 1,000 euro ($1,254) face amount, to 103.575. The yield has dropped 14 basis points since Aug. 17, the biggest decline since the week ended July 6.
With the German court set to rule on Sept. 12, investors looking for ECB President Mario Draghi to announce a definitive purchase program at his Sept. 6 press conference might be disappointed, according to the officials, who spoke on condition of anonymity because the deliberations are not public.
The program is still being worked on and staff may not be able to finalize it by then, said the officials, who are familiar with thinking on the ECB Governing Council. An ECB spokesman in Frankfurt declined to comment.
Bunds also advanced as a German lawmaker said the country can’t make more money available for Greece. Volker Kauder, the parliamentary caucus leader for Merkel’s Christian Democratic Union, said neither the content nor the timeframe of the aid program for the cash-strapped country can be re-negotiated. Kauder was speaking on ZDF public television.
Setting a yield band target is an option gaining favor among central bankers, but the decision would not be made before the ECB’s next meeting, Reuters said, without identifying where it got the information.
Denmark’s biggest pension fund ATP is shifting more of its investments over to longer-maturity bonds after short-term yields in Denmark and Germany sank below zero, with the intense focus on safety making it more difficult to generate returns.
ATP only holds government bonds from AAA rated Denmark and Germany, Henrik Gade Jepsen, chief investment officer at the Hilleroed-based fund, said in an interview.
Germany’s two-year note yield was little changed at minus 0.012 percent. Denmark’s two-year rate was at minus 0.213 percent.
A third of Dutch voters in the run-up to the Sept. 12 election back the Socialists, who oppose more spending cuts and refuse to hand over more sovereignty to Europe, or the Freedom Party, which seeks an exit from the European Union and the euro.
That will make it tough for caretaker Prime Minister Mark Rutte’s Liberals to find support from perhaps three or four parties for a majority in parliament and keep cutting the deficit.
Volatility on Italian government bonds was the highest in euro-region markets today, followed by Germany and Spain, according to measures of 10-year bonds, the spread between two- and 10-year securities, and credit-default swaps.
Italian 10-year bond yields rose two basis points to 5.72 percent, with the rate on similar-maturity Spanish debt climbing eight basis points to 6.42 percent.
German government debt returned 3.7 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish securities fell 2.3 percent and Italian bonds earned 11 percent.