European government bonds declined with Treasuries after a report showed the U.S. economy added more jobs last month than economists forecast, damping demand for fixed-income assets.
Benchmark German 10-year bunds headed for a weekly decline as the data underscored the view of Federal Reserve officials that employment conditions are improving as they consider when to dial back record monetary stimulus. France’s bonds dropped after Standard & Poor’s lowered the country’s sovereign-debt rating by one level. Spanish and Italian securities also fell.
“We saw a very strong U.S. payrolls report and bunds are following Treasuries lower,” said Mathias Van Der Jeugt, a fixed-income strategist at KBC Bank NV in Brussels. “Expectations for U.S. tapering are being brought forward. That’s weighing on Treasuries and the U.S.-German spread is widening,” he said, referring to the yield difference between the securities.
Germany’s 10-year bund yield rose eight basis points, or 0.08 percentage point, to 1.76 percent at 4:35 p.m. London time. The rate has increased seven basis points this week. The 2 percent bond maturing in August 2023 fell 0.715, or 7.15 euros per 1,000-euro ($1,335) face amount, to 102.1.
Treasury 10-year note yields climbed 14 basis points to 2.74 percent. The extra yield, or spread, investors demand to hold 10-year Treasuries instead of their German equivalents widened by seven basis points to 98 basis points, the most since Sept. 9.
The U.S. economy added 204,000 workers last month and a revised 163,000 in September that was larger than initially estimated, Labor Department figures showed today. The median forecast of 91 economists surveyed by Bloomberg called for a 120,000 advance. The jobless rate rose to 7.3 percent from an almost five-year low of 7.2 percent.
Spain’s 10-year yield increased six basis points to 4.11 percent. The rate on similar-maturity Italian debt rose five basis points to 4.15 percent.
Italy may reduce its government-bond issuance plan for the rest of the year, debt agency chief Maria Cannata said in Brussels today.
Volatility on German bonds was the highest in the euro-area markets, followed by those of Finland and Belgium, according to measures of 10-year debt, the yield spread between two- and 10-year securities and credit-default swaps.
S&P downgraded France to AA from AA+ with a stable outlook saying the government’s reform of tax, labor markets, products and services won’t raise medium-term growth prospects.
The yield on France’s 1.75 percent bond due in May 2023 increased six basis points to 2.22 percent.
Yet, the cost of insuring French debt against default fell to the least in more than three years. Credit-default swaps on French debt slid one basis point to 51.4 basis points today, the lowest since April 2010, based on closing prices. That compares with a euro-era high of 253 basis points set in November 2011.
“French yields rose after the downgrade but we expect any increase to be limited as the move has been largely expected,” said Ciaran O’Hagan, head of European interest-rate strategy at Societe Generale SA in Paris. “The news may have provided some impetus for the market to take profits on Italian and Spanish bonds after a big rally yesterday. But in the bigger scheme of things, the impact will probably be limited.”
German securities lost 1 percent this year through yesterday, according to Bloomberg World Bond Indexes. Spain’s returned 11 percent, Italy’s earned 7 percent and French bonds gained 0.3 percent.
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