Austrian and Dutch securities gained with other so-called semi-core securities amid concern the Federal Reserve is moving toward reducing its program of monetary stimulus, known as quantitative easing. Italian bonds swung between gains and losses after the nation’s borrowing costs rose as it sold 7.83 billion euros ($10.4 billion) of debt. Greek 10-year securities gained for the first time in seven days.
“The risk-off tone is now to such an extent that we’re seeing falls in yields in the AAA regions,” said Elwin de Groot, senior market economist at Rabobank Nederland in Utrecht, the Netherlands. “Initially it was really the fear of QE tapering. Now it’s more the second-round effect of this volatility in the market. The fear is that this may also sap the economic recovery at some stage.”
Germany’s benchmark 10-year yield fell two basis points, or 0.02 percentage point, to 1.57 percent at 4:52 p.m. London time after climbing to 1.66 percent on June 11, the highest level since Feb. 20. The 1.5 percent bund due in May 2023 rose 0.21, or 2.10 euros per 1,000-euro face amount, to 99.435.
The World Bank lowered its global growth forecast for next year to 2.2 percent from its January estimate of 2.4 percent, in a report yesterday. Fed policy makers next meet on June 18-19 after Chairman Ben S. Bernanke said May 22 the central bank could scale back stimulus efforts should the job market show “sustainable improvement.”
Volatility on Austrian bonds was the highest in euro-area markets today followed by those of Finland and Spain, according to measures of 10-year debt, the yield spread between two- and 10-year securities, and credit-default swaps.
Italy sold 3.4 billion euros of three-year notes at a yield of 2.38 percent, up from 1.92 percent at the previous auction on May 13. The Treasury also placed 1.5 billion euros of 15-year bonds at a yield of 4.67 percent, and 2.9 billion euros of two floating-rate securities due in 2018.
“Bearing in mind there were some concerns given the spike in yields and negative news flow for the periphery in general, this has gone well,” said Michael Leister, an interest-rate strategist at Commerzbank AG in London.
Italy’s 10-year yield fell three basis points at 4.36 percent after rising as much as eight basis points and falling up to seven basis points.
Italian bonds may benefit from the funding requirements for the rest of the year, according to UniCredit SpA.
“Italy is the country with the most favorable liquidity/supply balance until year-end, as redemptions and coupons will be 25 billion euros higher than supply,” strategists led by Michael Rottmann, head of fixed-income research in Munich, wrote in a note to clients.
Spanish 10-year bonds were little changed with the yield at 4.62 percent.
Greek bonds snapped a six-day decline. The yield fell 31 basis points to 10.05 percent after earlier climbing to 10.80 percent, the highest since May 2.
Political uncertainty is Greece is likely to persist after Prime Minister Antonis Samaras this week ordered the closing of the country’s public broadcaster ERT, increasing the risk of an early election, Nomura International Plc strategist Lefteris Farmakis in London, wrote in an e-mailed comment.
German bonds handed investors a loss of 1.1 percent this year through yesterday, according to the Bloomberg Germany Sovereign Bond Index. French bonds fell 0.5 percent and Italian securities returned 2.5 percent, separate indexes show.
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