German Bunds Rise as Confidence Gauge Drops More Than Forecast

Germany’s government bonds rose, with yields approaching the least in a year, after a gauge of German investor confidence fell more than economists predicted, adding to speculation euro-area interest rates will stay low.

Yields on two-year (GDBR2) notes were about two basis points from falling to negative after European Central Bank President Mario Draghi said yesterday that risks to the region’s economic outlook are to the “downside.” Spanish securities advanced even as Draghi said in testimony to the European Parliament yesterday that banks shouldn’t count on a fresh round of ECB cash to buy sovereign debt. Portugal’s bonds fell for the first time in three days.

“We’ve had weaker economic data and there’s little expectation that’s about to change anytime soon,” said Rainer Guntermann, a fixed-income strategist at Commerzbank AG in Frankfurt. “Draghi gave the market a bit of a push, reinforcing the idea the ECB is ready to do more if needed. It’s not necessarily new but gives the market more comfort that we’re in a low interest-rate environment.”

Benchmark 10-year (GDBR10) German yields fell two basis points, or 0.02 percentage point, to 1.19 percent at 10:42 a.m. London time, after dropping to 1.17 percent last week, the lowest since May 2013. The 1.5 percent bond maturing in May 2024 rose 0.19, or 1.90 euros per 1,000-euro ($1,359) face amount, to 102.87. Two-year yields were at 0.02 percent.

The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, dropped to 27.1 from 29.8 in June. Economists forecast a decrease to 28.2, according to the median of 36 estimates in a Bloomberg News survey. The gauge has fallen every month since reaching a seven-year high in December.

Portugal’s 10-year yield increased five basis points today to 3.86 percent, having slipped 18 basis points during the previous two days.

Germany’s bonds have returned 5.1 percent this year through yesterday, Bloomberg World Bond Indexes show. Spanish securities returned 9 percent while those of Portugal gained 15 percent, according to the gauges.

To contact the reporter on this story: Neal Armstrong in London at narmstrong8@bloomberg.net

To contact the editors responsible for this story: Paul Dobson at pdobson2@bloomberg.net Lukanyo Mnyanda, Nicholas Reynolds

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