German bonds fell this week, with 10-year yields rising the most since December, as Federal Reserve Chair Janet Yellen brought forward forecasts for higher U.S. interest rates, damping demand for fixed-income assets.
Austrian, Dutch (GNTH10YR) and French securities declined along with U.S. Treasuries after Yellen said she saw a period of “around six months” between the end of the Fed’s bond purchases and the first U.S. rate increase. Greece’s bonds advanced as the nation reached an agreement with its creditors and amid optimism that improving finances will allow it to sell coupon-bearing debt for the first time in four years.
“The pressure on bond yields will be on the upside,” said Allan von Mehren, chief analyst at Danske Bank A/S in Copenhagen. “We’ve seen the Fed being more hawkish. We’re not going to see a massive bear market, but longer-dated European bonds will follow the U.S.”
Benchmark German 10-year yields rose nine basis points, or 0.09 percentage point, this week to 1.63 percent at 5 p.m. London time, the biggest increase since the period ended Dec. 27. The 1.75 percent bund due in February 2024 fell 0.785, or 7.85 euros per 1,000-euro ($1,380) face amount, to 101.075.
At the end of a two-day policy meeting on March 19, the Fed released new forecasts showing more officials predicting the benchmark rate, now close to zero, would rise at least to 1 percent at the end of 2015 and 2.25 percent by the end of the following year, higher than previously forecast.
French 10-year (GFRN10) yields rose four basis points this week to 2.16 percent, while those on similar-maturity Dutch bonds gained six basis points to 1.84 percent and Austrian rates increased five basis points to 1.89 percent.
Greece will probably sell bonds before May as the country seeks to rebuild its finances following an international bailout, Infrastructure Minister Michalis Chrisochoides said.
“We will get the next loan tranche, the country will return to markets, with a slightly high interest rate, which will fall after, and Greece won’t remain in this drama of quarterly troika reviews,” Chrisochoides said in Athens on March 17, referring to the European Commission, European Central Bank and the International Monetary Fund.
Standard & Poor’s yesterday affirmed Greece’s credit rating at B- with a stable outlook. S&P kept the sovereign rating six steps below investment grade, saying the nation’s debt remains large even as its fiscal performance improves.
Greek 10-year (GGGB10YR) bond yields fell 31 basis points in the week to 6.92 percent after dropping to 6.62 percent on March 6, the lowest level since May 2010.
The Netherlands is scheduled to sell at least 5 billion euros of government bonds maturing in July 2024 on March 25, while Italy plans to auction inflation-linked and zero-coupon debt a day later and bonds on March 28.
German bonds returned 2 percent this year through March 20, according to Bloomberg World Bond indexes. Dutch securities also gained 2 percent, while Greece’s earned 19 percent.
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