Ten-year bund yields rose to the highest in 17 months as European Central Bank policy maker Ewald Nowotny said the recent “stream of good news” in the euro area removed the need to cut interest rates. Dutch 10-year rates climbed to the most since April 2012, while Austria’s reached the highest since July 2012. Spanish and Italian bonds fell this week as Federal Reserve minutes showed policy makers were “comfortable” with slowing stimulus that has boosted higher-yielding assets.
“The bond market is moving in one direction,” said Michael Markovich, head of global interest-rate research at Credit Suisse Group AG in Zurich. “It has taken the Fed minutes to mean that tapering is on the way. The market is being overly-optimistic on a normalization of interest rates in Europe.”
Germany’s 10-year yield rose one basis point, or 0.01 percentage point, to 1.93 percent at 4:52 p.m. London time after climbing to 1.98 percent, the highest since March 2012. The 1.5 percent bund due in May 2023 fell 0.105, or 1.05 euros per 1,000-euro ($1,335) face amount, to 96.20. The yield has increased five basis points this week.
German gross domestic product grew 0.7 percent last quarter after stagnating during the previous three months, the Federal Statistics Office said, confirming a preliminary estimate released Aug. 14. An index of euro-area consumer confidence rose to minus 15.6 this month, the highest since July 2011, the European Commission said in Brussels.
“The data confirms that the European economy is recovering and Germany is the country that will be in the lead,” said Allan von Mehren, chief analyst at Danske Bank A/S (DANSKE) in Copenhagen. “Nowotny has said that rate cuts are off the table and while this shouldn’t be too controversial given the economic improvement, at the margin it could put a little bit of pressure on the bond market.”
Dutch 10-year yields were little changed at 2.32 percent after rising to 2.37 percent, the highest since April 25, 2012. Austria’s were little changed at 2.33 percent after reaching 2.38 percent, the most since July 2, 2012.
Spain’s 10-year yield fell three basis points to 4.46 percent, having risen 10 basis points this week. Similar-maturity Italian yields climbed two basis points to 4.33 percent, extending this week’s increase to 14 basis points. Rates on both securities are headed for their first weekly increase since the period ending July 12.
A few U.S. policy makers said ``it might soon be time to slow somewhat the pace of purchases,'' according to the minutes of the Federal Open Market Committee's July 30-31 meeting released Aug. 21.
The Fed will reduce its monthly bond purchases from $85 billion at its next meeting on Sept. 17-18, according to 65 percent of economists in an Aug. 9-13 Bloomberg survey. The median estimate is for a cut to $75 billion each month.
Volatility on Dutch bonds was the highest in euro-area markets today followed by those of Austria and Germany, according to measures of 10-year debt, the yield spread between two- and 10-year securities, and credit-default swaps.