German Bunds Rise Most in a Year on ECB as Portugal’s Bonds Drop

Germany’s 10-year (GSPT10YR) government bonds advanced for a second week amid speculation central banks around the world will maintain monetary stimulus, underpinning demand for fixed-income securities.

Benchmark 10-year bund yields declined the most in a year as a political dispute in Portugal fueled demand for the region’s safest assets. French and Dutch securities also rose as Federal Reserve Chairman Ben S. Bernanke said this week a “highly accommodative monetary policy” was needed in the U.S. economy for the foreseeable future. Portuguese 10-year bonds declined for an eighth week, pushing yields toward the highest level since November.

“Yield-level wise, we could go somewhat lower in the medium term,” said Rasmus Rousing, a fixed-income strategist at Credit Suisse Group AG in Zurich, referring to German bonds. “It’s related with what has been happening in the U.S.”

Germany’s 10-year yield fell 16 basis points, or 0.16 percentage point this week to 1.56 percent as of 5 p.m. in London yesterday, the steepest decline since the period ended July 6, 2012. The 1.5 percent bund due in May 2023 climbed 1.43, or 14.30 euros per 1,000-euro ($1,305) face amount, to 99.46.

France (GFRN10)’s 10-year yield declined 10 basis points this week to 2.19 percent, while similar-maturity Dutch rates dropped 13 basis points to 1.97 percent.

ECB ‘Accommodative’

Bernanke damped speculation in a July 10 speech that the U.S. central bank would reduce its bond-buying program this year. European Central Bank Executive Board member Vitor Constancio said yesterday euro-region monetary policy will stay accommodative.

Europe is behind the U.S. in economic recovery and inflation risks, which implies that monetary policy has to stay accommodative for a longer period of time,” Constancio said in a speech in Singapore.

ECB President Mario Draghi pledged on July 4 to keep interest rates low for an “extended period” in a bid to cap yields that threaten to stifle economic growth.

Portugal’s President Anibal Cavaco Silva said that early elections were undesirable and urged the ruling coalition parties and the main opposition to reach a “national salvation” pact allowing the country to complete its aid program.

Portuguese 10-year yields climbed 38 basis points this week to 7.51 percent after climbing to 8.11 percent on July 3, the highest level since Nov. 21. The rate on similar-maturity Italian bonds rose six basis points to 4.48 percent and Spain’s increased 13 basis points to 4.78 percent.

Portugal is due to sell 154- and 364-day bills on July 17. Spain auctions debt maturing between 2016 and 2023 on July 18, as well as bills on July 16. Greece plans to sell three-month securities on July 16.

Portuguese bonds handed investors a loss of 4.3 percent in the three months through July 11, according to Bloomberg World Bond Indexes. German securities fell 1.4 percent, while Dutch (GNTH10YR) and French bonds slipped 1.2 percent, the indexes show.

To contact the reporter on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net

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