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German Bunds Rise After Retail Sales Decline

Germany’s bonds rose, with 10-year yields falling from the highest level in four months, as a report showing retail sales dropped in December boosted demand for the euro-region’s safest assets.

Benchmark 10-year bunds pared their biggest monthly loss since June even as a separate report showed German unemployment unexpectedly declined in January. Austrian and French bonds also advanced. Portuguese 10-year securities slid for a second day after data showed house prices in the euro area fell in the third quarter. Spanish 10-year yields fell from the highest level since December.

“Retail sales in Germany were quite poor this morning and that’s fueling demand” for bunds, said Owen Callan, an analyst at Danske Bank A/S (DANSKE) in Dublin. “With 10-year German yields rising above 1.70 percent yesterday, some investors probably think they are attractive levels, when you consider they were around 1.40 percent at the start of the month.”

German 10-year yields fell three basis points, or 0.03 percentage point, to 1.68 percent at 4:45 p.m. London time. The rate climbed to 1.73 percent yesterday, the highest level since Sept. 17. The 1.5 percent security maturing in February 2023 gained 0.31, or 3.10 euros per 1,000-euro ($1,357) face amount, to 98.38. The two-year note yield dropped two basis points to 0.27 percent.

Austria, Portugal

Volatility on Austrian bonds was the highest in euro-area markets, followed by those of Portugal and Spain, according to measures of 10-year or similar-maturity debt, the yield spread between two- and 10-year securities, and credit-default swaps.

Austrian 10-year yields fell four basis points to 1.99 percent. The rate on similar-maturity French debt slid five basis points to 2.26 percent.

German retail sales dropped 1.7 percent from November, when they rose a revised 0.6 percent, the Federal Statistics Office in Wiesbaden said today. The number of people out of work fell a seasonally adjusted 16,000 to 2.92 million, the Nuremberg-based Federal Labor Agency said today. Economists had predicted an increase of 8,000, the median of 31 estimates in a Bloomberg News survey showed.

The rate on Portugal’s 10-year bond climbed five basis points to 6.13 percent, after jumping as much as 20 basis points to 6.27 percent. Spanish 10-year bond yields fell four basis points to 5.18 percent after rising to 5.31 percent, the highest since Dec. 28.

The extra yield, or spread, that investors charge to hold Italian bonds instead of benchmark German bunds widened three basis points, to 264 basis points. It reached 248 basis points on Jan. 29, the lowest level since July 2011.

‘Backing Off’

“People are backing off the lows we’ve seen in the last few weeks because the rally’s gone so far,” said Ciaran O’Hagan, head of European rates strategy at Societe Generale SA in Paris. “Overall, the environment for the peripherals still remains supportive.”

Euro-region house prices dropped 2.5 percent in the third quarter from a year earlier and Spain’s annualized consumer prices rose 2.8 percent in January, the slowest pace since August, separate reports showed today.

German bonds have handed investors a loss of 2 percent this month through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish bonds returned 1.8 percent and Italian securities gained 1.5 percent.

To contact the reporters on this story: Emma Charlton in London at echarlton1@bloomberg.net; Neal Armstrong in London at narmstrong8@bloomberg.net

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net

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