Belgian and Austrian bonds led declines among euro-area government debt as investors bet gains that pushed yields of so-called semi-core markets to record lows were too rapid given the outlook for rising supply.
Dutch 10-year yields climbed the most in three weeks as the nation sold 2.04 billion euros ($2.67 billion) of 20-year bonds at an auction. German two-year notes dropped for a third day before the country sells an additional 5 billion euros of the securities tomorrow. Italy will auction 11 billion euros of bills tomorrow as well as bonds the following day. Finland sold 10-year bonds through banks, while the European Financial Stability Facility sold 8 billion euros of five-year notes.
“We have quite a decent chunk of supply coming to the market so there’s a lot for the market to digest,” said Michael Leister, an interest-rate strategist at Commerzbank AG in London. “We’re seeing some profit-taking after the impressive rally we’ve seen in the semi-core. We remain constructive on semi-core spreads as the hunt for yield goes global, so we think this selloff will be short-lived.”
Belgium’s 10-year yields increased six basis points, or 0.06 percentage point, to 2.02 percent at 4:43 p.m. London time after dropping to 1.924 percent yesterday, the lowest since Bloomberg began compiling the data in 1993. The 2.25 percent bond due in June 2023 fell 0.6, or 6 euros per 1,000-euro face amount, to 102.07.
The extra yield investors demand to hold the securities instead of German bunds widened for the first time in seven days, expanding four basis points to 76 basis points.
Austrian 10-year yields rose eight basis points to 1.58 percent after dropping to a record 1.46 percent yesterday. Similar-maturity Dutch 10-year yields climbed seven basis points to 1.70 percent after rising as much as eight basis points, the most since March 20.
“We might be taking a pause for breath,” said Nick Stamenkovic, a strategist at RIA Capital Markets Ltd. in Edinburgh. “Italy is probably going to be the most important” among this week’s debt auctions, he said.
Volatility on Austrian bonds was the highest in euro-area markets followed by those of Belgium and the Netherlands, according to measures of 10-year debt, the yield spread between two- and 10-year securities and credit-default swaps.
Demand for the bonds of Europe’s so-called semi-core nations surged after the Bank of Japan (8301) said last week it would increase its monthly asset purchases to 7.5 trillion yen ($75.7 billion), exceeding the 5.2-trillion yen forecast by economists surveyed by Bloomberg. Europe’s government securities climbed on bets Japanese investors would seek higher returns abroad as local yields fell and the yen weakened.
Finland’s 10-year bonds fell for a second day after it sold 4 billion euros of a new benchmark security via banks. The Finnish 10-year yield climbed four basis points to 1.47 percent.
Europe’s rescue fund, the EFSF, sold 8 billion euros of 0.875 percent securities maturing on April 16, 2018 via banks.
The sale had “exceptionally strong demand,” the EFSF said in an emailed statement. “Close to 200 investors” bid for 14 billion euros of the debt, it said.
Austria has mandated banks to sell a 10-year bond, a person familiar with the matter told Bloomberg News today. The person asked not to be named because they aren’t authorized to talk about the sale.
Germany’s 10-year yield increased three basis points to 1.26 percent after falling to 1.20 percent on April 5, the lowest level since July. The two-year yield rose one basis point to 0.028 percent.
German exports, adjusted for working days and seasonal changes, dropped 1.5 percent from January, when they gained 1.3 percent, the Federal Statistics Office said. French manufacturing confidence unexpectedly worsened last month, according to the national statistics office.
“The outlook for Europe is really quite meager and that’s not only because of the periphery but weakness in the core member states, even in Germany,” said Elwin de Groot, a market economist at Rabobank Nederland in Utrecht, the Netherlands. “This is keeping a lid on core yields.”
Belgian bonds returned 1.9 percent this month through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Italian securities gained 2 percent and Spain’s rose 1.9 percent.