German government bonds fell, with 10-year yields climbing to the highest level in three weeks, as signs that U.S. lawmakers are poised to reach an agreement to end a fiscal standoff damped demand for safer assets.
Austrian, Dutch and Finnish securities also declined amid bets politicians will reach an agreement before the U.S. borrowing authority lapses on Oct. 17. German bunds stayed lower as a report showed investor confidence in Europe’s biggest economy increased in October. Spain sold 3.75 billion euros ($5.06 billion) of 12-month bills at the lowest rate since April 2010. Greek bonds advanced, pushing 10-year yields to the lowest since the nation’s debt was restructured in March 2012.
“Speculation that there will be a solution for the debt-ceiling limit in the U.S. is pushing bond yields in the core market higher,” said Jussi Hiljanen, head of fixed-income research at SEB AB in Stockholm. “Everyone hopes politicians will work things out but we expect some volatility in the run-up to the deadline.”
Germany’s benchmark 10-year yield climbed five basis points, or 0.05 percentage point, to 1.91 percent at 4:41 p.m. London time, the highest since Sept. 24. The 2 percent bund due in August 2023 fell 0.43, or 4.30 euros per 1,000-euro face amount, to 100.825.
Austria’s 10-year yields increased four basis points to 2.28 percent, Dutch rates also climbed four basis points, to 2.27 percent, as did Finland’s, advancing to 2.15 percent.
The emerging U.S. deal would stave off a potential default, end the 15-day-old government shutdown and change the immediate deadlines in favor of three new ones over the next four months. It’s far from complete as the Senate may delay passing the plan and House Republicans may seek to block or change it.
“We’ve made tremendous progress,” Senate Majority Leader Harry Reid said yesterday in Washington. “We are not there yet.” He said he hoped a deal could be announced today as his Republican counterpart, Minority Leader Mitch McConnell, said “substantial progress” had been made.
Treasuries dropped for a fifth day, the longest losing streak since June, with the 10-year yield rising three basis points to 2.72 percent.
Volatility on Finnish bonds was the highest in euro-area markets today, followed by those of Greece and the Netherlands, according to measures of 10-year debt, the yield spread between two- and 10-year securities, and credit-default swaps.
The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations rose to 52.8 from 49.6 in September. The gauge of the current situation fell to 29.7 from 30.6, compared with the median forecast of 31.3.
“While the current index fell a tad, there are foundations for a modest but robust recovery,” said Annalisa Piazza, an analyst at Newedge Group in London. “We expect bund yields to progressively rise.”
The benchmark yield may climb to as much as 2.10 percent by year-end, Piazza said. The median of analyst and economist predictions compiled by Bloomberg is for the rate to reach 1.93 percent in December and 2.10 percent at the end of June.
German two-year note yields rose as much as three basis points to 0.21 percent today, the highest since Sept. 23, before an offering tomorrow of 5 billion euros of the debt.
They were last sold on Sept. 18 at an average yield of 0.22 percent, compared with 0.23 percent at an auction on Aug. 21.
Spain’s Treasury said it sold the one-year bills at an average yield of 0.961 percent and 817 million euros of six-month securities at 0.672 percent. Investors bid for 2.06 times the 12-month securities sold, up from a bid-to-cover ratio of 1.85 at the previous auction on Sept. 17.
Spain expects to conclude its bank-aid program on time at the end of the year after drawing 41.3 billion euros of a 100 billion-euro credit line granted by the euro rescue fund, Economy Minister Luis de Guindos said yesterday. The economy probably exited its second recession since 2008 in the third quarter, the government forecasts.
Greece’s 10-year yield fell 29 basis points to 8.38 percent after declining to 8.07 percent. The rate has dropped 86 basis points in the past week.
The nation’s 10-year yield surged to as high as 44.21 percent in March 2012 as the government forced losses on investors as part of a debt swap that saw it issue new securities at less than 30 percent of face amount.
European Union finance ministers meeting in Luxembourg today agreed that the success of European Central Bank-led asset-quality reviews and stress tests depends on having sufficient backstops in place to handle any capital shortfalls that are uncovered.
German bonds lost 2 percent this year through yesterday, according to Bloomberg World Bond Indexes. Austrian securities dropped 1.3 percent and Dutch bonds declined 2.3 percent.