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Dutch to Spanish Bonds Little Changed as Traders Disregard S&P

Photographer: Angel Navarrete/Bloomberg

The Ford Espana SL plant, operated by Ford Motor Co., in Almusafes, Spain. Close

The Ford Espana SL plant, operated by Ford Motor Co., in Almusafes, Spain.

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Photographer: Angel Navarrete/Bloomberg

The Ford Espana SL plant, operated by Ford Motor Co., in Almusafes, Spain.

European government bonds were little changed as investors showed a muted reaction to Standard & Poor’s decision to raise its outlook on Spain’s debt and strip the Netherlands of its top credit rating.

Benchmark German 10-year yields were three basis points from the lowest level since August before a report economists said will show euro-area inflation accelerated in November. Separate data will show the unemployment rate in the 17-nation currency bloc remained at a record high in October, according to a Bloomberg News survey of analysts. S&P raised Spain’s outlook to stable from negative, citing a resumption in economic growth.

“Most people who are investing in government bonds have their own view on the credit,” said Peter Chatwell, an interest-rate strategist at Credit Agricole Corporate & Investment Bank in London. “We’re getting more rating agencies recognizing the stability of peripheral markets. It’s being reflected by the agencies but it’s nothing that the market hasn’t already got in its price.”

German 10-year bund yields were at 1.69 percent as of 7:56 a.m. London time. The price of the 2 percent bond maturing in August 2023 was 102.75. The yield fell to 1.65 percent on Oct. 31, the lowest since Aug. 8. The rate has increased one basis point, or 0.01 percentage point, this month.

Global bond yields showed investors ignored 56 percent of Moody’s Investors Service and 50 percent of S&P’s rating and outlook changes last year, more often disagreeing when the companies said governments were becoming safer or more risky, data compiled by Bloomberg show.

Spanish Recovery

Spain’s 10-year bond yield was little changed at 4.14 percent. Spain emerged from a more than two-year recession in the third quarter and the main Ibex 35 stock index has risen about 21 percent this year as foreign investors returned to the market.

The Dutch 10-year bond yield was little changed at 2.03 percent after S&P lowered the Netherlands to AA+ from AAA, citing weaker growth prospects than previously anticipated. Investors have largely disregarded such downgrades, reflecting a shift from reliance on ratings companies to a focus on in-house analysis.

The annual inflation rate in the euro region rose 0.8 percent, according to the median forecast in a Bloomberg survey of analysts. That compares with a 0.7 percent increase in October, which was the lowest since November 2009. Data yesterday showed Germany’s annual inflation rate, calculated using a harmonized European Union method, climbed to 1.6 percent in November from 1.2 percent last month.

ECB Policy

Unemployment in the euro region was at 12.2 percent last month, unchanged from September, the median forecast in a Bloomberg survey of economists showed.

The European Central Bank unexpectedly cut its benchmark interest rate to a record 0.25 percent on Nov. 7, with President Mario Draghi saying the region “may experience a prolonged period of low inflation,” and the central bank would keep monetary policy accommodative as long as needed. The central bank is scheduled to announce its next policy decision on Dec. 5, when it will also release updated growth and inflation forecasts.

German retail sales fell 0.8 percent last month compared to a revised 0.2 percent drop in September, a report from the from the Federal Statistics Office in Wiesbaden showed today. The median estimate in a Bloomberg survey of economists was for an increase of 0.5 percent.

German bonds lost 1 percent this year through yesterday the worst performer after the Netherlands of 15 euro-area debt markets tracked by Bloomberg World Bond Indexes. Spain’s returned 11 percent and Italy’s earned 7.6 percent, while Dutch securities dropped 1.1 percent.

To contact the reporters on this story: Neal Armstrong in London at narmstrong8@bloomberg.net; Lucy Meakin in London at lmeakin1@bloomberg.net

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

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