French, Austrian and Belgian bonds rose, pushing 10-year yields to record lows, amid speculation the European Central Bank will keep monetary policy accommodative, boosting demand for alternatives to German bunds.
Ten-year German bunds advanced after data showed U.S. employers hired fewer workers than economists forecast in March. Spanish and Italian securities also gained after ECB President Mario Draghi said yesterday policy makers “stand ready to act.” Most euro-denominated government bonds climbed for a second day amid bets the Bank of Japan (8301)’s 7.5 trillion yen ($77.9 billion) of monthly bond purchases will increase investor appetite for higher returns.
“Draghi sounded more dovish than expected and hinted at a rate cut soon, maybe even at the next meeting,” said Mathias Van Der Jeugt, a fixed-income strategist at KBC Bank NV in Brussels. “Core bonds are rallying.”
France’s 10-year yield dropped 11 basis points, or 0.11 percentage point, to 1.76 percent at 4:51 p.m. London time after falling to 1.716 percent, the lowest level since Bloomberg began compiling the data in 1990. The 2.25 percent security maturing in October 2022 rose 1, or 10 euros per 1,000-euro ($1,302) face amount, to 104.29.
The extra yield investors demand to hold French 10-year securities instead of similar-maturity German bunds narrowed nine basis points to 54 basis points. Austria’s 10-year yield fell as much as 11 basis points to 1.474 percent and the rate on similar-maturity Belgian bonds dropped to 1.925 percent, both records.
The Frankfurt-based central bank left its key refinancing rate at a record-low 0.75 percent yesterday, with Draghi saying at a press conference after the decision that monetary policy “will remain accommodative for as long as needed.”
Japan’s central bank said yesterday it will double the monetary base by the end of 2014 by buying government bonds.
Volatility on French bonds was the highest in euro-area markets today followed by those of Austria and Belgium, according to measures of 10-year debt, the yield spread between two- and 10-year securities, and credit-default swaps.
“There is better value in the German and other core curves relative to Japan,” said Padhraic Garvey, head of developed- market debt strategy at ING Groep NV in Amsterdam. “Sitting in Europe, Germany doesn’t look like good value, but sitting in Japan, it might.”
German 10-year bunds gained, pushing the yield down three basis points to 1.21 percent, after falling to 1.20 percent, the lowest level since July 24.
U.S. payrolls grew by 88,000 workers last month, the smallest since June, after a revised 268,000 gain in February that was higher than first estimated, Labor Department figures showed today in Washington. The median forecast of economists surveyed by Bloomberg projected an advance of 190,000.
Spain’s 10-year yield dropped 16 basis points to 4.75 percent, extending their decline this week to 31 basis points. Rates on similar-maturity Italian securities fell as much as 19 basis points to 4.37 percent, the lowest level since Feb. 25.
Portuguese notes fell as Prime Minister Pedro Passos Coelho faced a ruling on the legality of parts of this year’s budget and the nation’s Expresso newspaper reported that the outcome may be announced as soon as today.
President Anibal Cavaco Silva and different political groups asked the nation’s Constitutional Court in January to review some points of the budget, including taxes on pensions. No date is set for the ruling, and no-one was immediately available at the court’s press office to comment on the reports.
“A rejection would be an embarrassment for the center- right coalition government and could cause instability in the otherwise very stable coalition,” said Christian Schulz, an economist at Berenberg Bank in London. “New worries about Portugal would come at an inconvenient time for the eurozone.”
Portugal’s two-year note yield advanced two basis points to 2.97 percent, after adding two basis points yesterday.
French government bonds returned 0.6 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds gained 0.7 percent and Spanish bonds earned 4 percent.