German government bonds fell for a fourth day, leading most euro-area sovereign debt lower, as investors bet the European Central Bank will refrain from adding new stimulus to tackle slowing inflation.
Austrian, Belgian and French 10-year yields climbed to the highest levels in a week after ECB Vice President Vitor Constancio said yesterday the euro region will probably avoid outright deflation. Germany’s five-year notes declined as the nation sold 2.4 billion euros ($3.3 billion) of the securities to the market. Greece’s 10-year yields dropped to a four-year low as officials said the nation plans to return to capital markets to sell government debt.
“It’s a continuation of the theme of the past few sessions,” said Michael Leister, a senior fixed-income strategist at Commerzbank AG in London. “The pricing out of tangible ECB action this week is continuing. Bunds are going to remain under pressure.”
German 10-year yields increased five basis points, or 0.05 percentage point, to 1.62 percent at 4:09 p.m. London time, the highest level since March 24. The 1.75 percent bund due in February 2024 fell 0.425, or 4.25 euros per 1,000-euro face amount, to 101.18.
Germany’s five-year rate rose four basis points to 0.69 percent. The nation allotted the 1 percent notes due in February 2019 at an average yield of 0.66 percent, up from 0.64 percent at a previous sale on March 5.
Austrian 10-year yield gained as much as four basis points to 1.87 percent, the highest since March 24, and that on similar-maturity Belgian bonds increased three basis points to 2.26 percent. The rate on French 10-year (GFRN10) securities climbed four basis points to 2.14 percent, the highest since March 25.
All but three of 57 financial institutions surveyed by Bloomberg News predict the ECB will keep its key interest rate at a record-low 0.25 percent tomorrow. Danske Bank A/S and Credit Agricole SA forecast a cut to 0.15 percent while Goldman Sachs Group Inc. says policy makers will lower it to 0.1 percent. The ECB last reduced borrowing costs in November.
“The prospects for inflation are a cause for concern,” Constancio said at a press conference in Athens yesterday, after data released March 31 showed euro-area inflation slowed last month to 0.5 percent, the lowest level in more than four years. “If indeed the recovery consolidates, it means that the slack in the recovery is reduced, and that will help on that score.”
Greece’s government, approaching the end of a second international bailout that has kept it afloat since 2010, intends to return to markets by selling 2 billion euros of bonds, three officials said. Only the issue of timing remains to be resolved, one Greek official said on condition of anonymity because the plans haven’t been made public.
“It is easy to be skeptical,” Rabobank International strategists led by Richard McGuire, head of rates strategy in London, wrote in a client note. “However, the yield of the 10-year Greek government bond is now significantly below the psychologically significant 7 percent hurdle. We would be cautiously optimistic that Greece will indeed issue bonds in the first half of this year.”
Greek 10-year yields slid as much as 27 basis points to 6.20 percent, the lowest level since March 2010. The rate tumbled 43 basis points over the prior three days.
Volatility on Greek bonds was the highest in euro-area markets today, followed by those of Germany and Finland, according to measures of 10-year debt, the yield spread between two- and 10-year securities and credit-default swaps.