German 10-year bunds declined, pushing yields up the most in almost two weeks, as a U.S. payroll report showing employers added more jobs than economists forecast damped demand for safer assets.
Finnish and Dutch securities also fell as the report stoked speculation an improving U.S. labor market will allow the Federal Reserve to reduce asset purchases. Portugal’s bonds rose after Prime Minister Pedro Passos Coelho said his government will still have the support of a coalition partner even after the leader of the party resigned as a minister this week. European Central Bank President Mario Draghi’s pledged yesterday to keep interest rates low for an extended period.
“It’s a pretty strong report and the bond market is going down,” said Peter Schaffrik, head of European interest-rates strategy at Royal Bank of Canada in London. “The European markets are holding up. The biggest move is in the Treasury-bund spread which is what you would expect in an environment where Draghi is nailing down the front end.”
Germany’s 10-year yield climbed seven basis points, or 0.07 percentage point, to 1.72 percent at 4:45 p.m. in London, the biggest increase since June 24. The 1.5 percent bond maturing in May 2023 dropped 0.62, or 6.20 euros per 1,000-euro ($1,283) face amount to 98.04.
Fed Chairman Ben S. Bernanke said on June 19 policy makers may “moderate” asset purchases this year and may end them mid-2014 if economic growth meets their forecasts. Draghi pledged yesterday to keep interest rates at a record low for an “extended period.”
Treasury 10-year yields climbed 19 basis points to 2.70 percent, increasing the extra yield over similar-maturity German bunds by 12 basis points to 98 basis points, the most since September 2006 based on closing prices.
U.S. payrolls rose by 195,000 workers for a second month in June, the Labor Department said in Washington. The median forecast in a Bloomberg survey projected a 165,000 gain after a previously reported 175,000 increase in May. The jobless rate stayed at 7.6 percent.
Volatility on Greek bonds was the highest among euro-area markets today, followed by those of Germany and France, according to measures of 10-year debt, the yield spread between two- and 10-year securities, and credit-default swaps.
Portuguese bonds pared a seventh weekly decline after Passos Coelho held meetings with CDS party leader Paulo Portas yesterday to try to shore up support for the government.
Portas’s resignation “was a personal decision that does not involve the CDS party’s support for the government,” Coelho told reporters. “A way will be found to guarantee the government has political support from the CDS party and in that manner ensure political stability. As head of government I will now seek from the two parties a reinforcement of political support for the government.”
Portugal’s 10-year yield dropped 15 basis points to 7.12 percent after climbing above 8 percent on July 3 for the first time since November. The rate has still increased 68 basis points this week, the most since the period ended July 27, 2012.
Portuguese five-year yields don’t accurately reflect the risks of the nation’s political crisis, high-debt load or the possibility of it needing additional aid, according to Pacific Investment Management Co.
“The clear risk is that additional official support is conditional on some burden-sharing with bond holders,” Myles Bradshaw, a fund manager at Pimco in London, wrote in an e-mailed statement. “The additional 600 basis points of spread for owning five-year Portuguese bonds rather than bunds offers insufficient reward for these high risks.”
Portugal’s five-year yield fell nine basis points to 6.48 percent, narrowing the difference over similar-maturity German securities to 584 basis points. The spread expanded to 601 basis points this week, the widest since November 2012.
German bonds handed investors a loss of 1.2 percent this year through yesterday, according to Bloomberg World Bond Indexes. Portuguese bonds dropped 1.1 percent and Austrian securities dropped 0.7 percent
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