Germany’s bonds fell, with 10-year yields climbing to the highest level in two weeks, as an increase in business confidence in Europe’s largest economy damped demand for the region’s safest assets.
German securities underperformed most of their euro-area peers, including those from Belgium and France. Spanish bonds rose for a second day after a report showed the unemployment rate declined in the second quarter. German bunds tumbled yesterday as data showed manufacturing in the euro area unexpectedly expanded this month.
“There’s this broadly risk-on tone in the wake of recent firm data,” said Richard McGuire, a fixed-income strategist at Rabobank International in London. “It’s seen a modest degree of pressure on safe havens such as bunds and Treasuries.”
Germany’s 10-year yield rose three basis points, or 0.03 percentage point, to 1.68 percent at 4:55 p.m. London time after climbing to 1.69 percent, the highest since July 9. The 1.5 percent bond due in May 2023 fell 0.26, or 2.60 euros per 1,000-euro ($1,323) face amount, to 98.43. The yield jumped 10 basis points yesterday.
The Ifo Institute said its German business climate index, based on a survey of 7,000 executives, increased to 106.2 this month from 105.9 in June. Economists forecast a reading of 106.1, according to a Bloomberg News survey. The expectations index fell to 102.4 from 102.5.
French 10-year yields rose two basis points to 2.29 percent, meaning the extra yield investors get for holding the securities instead of bunds narrowed two basis points to 61 basis points. The spread expanded to 69 basis points on July 22, the widest since June 24.
The Belgian-German spread contracted three basis points to 88 basis points. It was wider than 1 percentage point as recently as July 23.
“Belgium is quite attractive as it underperformed versus both core and periphery and offers good pick-ups,” said Gianluca Ziglio, executive director of fixed-income research at Sunrise Brokers LLP in London. “The same also applies to France.”
Spanish bonds advanced after the National Statistics Institute said the jobless rate declined to 26.3 percent the three months through June, compared with a record 27.2 percent in the previous quarter.
The nation’s 10-year yield fell five basis points to 4.63 percent after declining to 4.58 percent on July 23, the lowest level since June 19.
Italy’s bonds slid, with the 10-year yield rising two basis points to 4.39 percent. The nation is scheduled to auction 3 billion euros of zero-coupon bonds due in 2015 tomorrow.
Yields of Europe’s periphery nations have remained suppressed this year even as a banking collapse in Cyprus and political impasses in Italy and Portugal threatened to reignite the region’s debt crisis. In the year since European Central Bank President Mario Draghi made his pledge to defend the euro by buying government debt, borrowing costs for Europe’s highest debt and deficit nations have tumbled.
Draghi backed his July pledge in September by announcing a program known as Outright Monetary Transactions, under which the ECB will buy unlimited quantities of the bonds of member nations that meet certain criteria. The program covers notes with a maturity of one to three years and will only be activated after a government requests help.
Spanish 10-year yields have fallen from a euro-era record of 7.75 percent set the day before Draghi’s July 26, 2012 speech. Italian 10-year yields dropped more than 2 percentage points in the same period.
Volatility on Spain’s bonds was the highest in euro-area markets today followed by those of Finland and Germany, according to measures of 10-year debt, the yield spread between two- and 10-year securities, and credit-default swaps.
German bonds handed investors a loss of 1.3 percent this year through yesterday, according to Bloomberg World Bond Indexes. Italian securities returned 3.2 percent and Spanish bonds rose 6.3 percent.
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