Germany’s five-year notes rose for a sixth day on speculation the European Central Bank will maintain a pledge to keep monetary policy accommodative when it announces its next interest-rate decision in two days.
Austrian and Belgian shorter-dated debt also outperformed longer maturities after Market News International reported the ECB was considering providing forward guidance on its policy, citing people it didn’t identify. Portugal’s bonds fell as the government said it would replace its finance minister. European bonds slumped last month after Federal Reserve Chairman Ben S. Bernanke said policy makers may reduce debt purchases this year. Germany will sell five-year securities tomorrow.
“People expect the ECB to be dovish at a meeting this week to counter the impact of the Fed’s comments on bond yields,” said Alessandro Giansanti, a senior interest-rate strategist at ING Groep NV in Amsterdam. “That is likely to benefit shorter-dated bonds more than longer-dated securities.”
Germany’s five-year yield dropped three basis points, or 0.03 percentage point, to 0.70 percent at 5 p.m. London time after climbing to 0.93 percent on June 24, the highest level since March 2012. The 0.25 percent security maturing in April 2018 rose 0.125, or 1.25 euros per 1,000-euro ($1,302) face amount, to 97.905.
The ECB will keep its main refinancing rate at a record-low 0.5 percent at its meeting on Thursday, according to a Bloomberg News survey of economists.
“People are expecting a market-friendly message from the ECB which will reassure investors, and they’re just getting in ahead of that,” said John Wraith, a fixed-income strategist at Bank of America Corp. in London. “It makes sense for shorter-dated yields to come back down.”
European government securities also advanced after a report showed producer prices declined in May, signaling inflation remains in check in the 17-nation region.
Euro-area factory-gate prices fell 0.1 percent in the 12 months through May after a 0.2 percent annual decrease in April, the European Union’s statistics office said. Analysts had projected that prices would be unchanged, according to a Bloomberg News survey.
German five-year notes rose even though the government is scheduled to sell 4 billion euros of the securities tomorrow.
Germany last sold five-year debt on June 5 at an average yield of 0.54 percent. A sale at the current secondary market rate would have the highest auction yield since April 2012, according to data compiled by Bloomberg.
The extra yield on 10-year bunds over five-year notes increased one basis point to 101 basis points, the widest level since June 4.
Austria sold 1.65 billion euros of bonds maturing in 2018 and 2034 today.
Investors should buy the 2034 Austrian securities and sell 2.5 percent Dutch bond maturing in 2033, Pooja Kumra, a strategist at Nomura International Plc in London, wrote in a note yesterday. Recent declines may have gone too far as any exit by the ECB from accommodative monetary policy is still some way away, Kumra wrote.
The securities extended declines after Foreign Minister Paulo Portas, who leads a smaller party in the government coalition, resigned in protest at the appointment of the new finance minister.
Portugal’s 10-year yield climbed 33 basis points to 6.72 percent after dropping to 6.35 percent yesterday, the lowest level since June 20.
Finland sold 250 million pounds ($379 million) of sterling-denominated bonds due in December 2017 through banks today, and Luxembourg sold 2 billion euros of 10-year bonds also via banks, according to people familiar with the sales who asked not to be identified because they’re not authorized to speak about them.
Volatility on Portuguese bonds was the highest among euro-region markets today, followed by those of Ireland and Italy, according to measures of 10-year debt, the yield spread between two- and 10-year securities, and credit-default swaps. Swedish securities were the most volatile among all developed markets, the indexes showed.
German securities handed investors a loss of 1.6 percent this year through yesterday, according to Bloomberg World Bond Indexes. Austrian bonds fell 1 percent, while Portuguese securities returned 3.9 percent, the indexes show.