German government bonds fell, with 10-year yields climbing for the first time in five days, as easing geopolitical tensions in Ukraine and Iraq damped demand for the relative safety of fixed-income assets.
French and Dutch bonds also dropped with U.S. Treasuries, and European stocks jumped, as Ukraine and Russia met for talks and Kurdish forces made progress against militants in Iraq’s north. Ireland’s 10-year yield earlier reached a record low after the nation’s sovereign credit rating was raised to A- from BBB+ by Fitch Ratings on Aug. 15.
“The bund rally on Friday was initiated by geopolitical events which are volatile by nature,” said Alessandro Giansanti, a fixed-income strategist at ING Groep NV in Amsterdam. “I call today’s selloff as profit-taking due to fading geopolitical risk.” Ten-year bund yields are likely to climb to 1.15 percent by year-end, he said.
German 10-year yields rose six basis points, or 0.06 percentage point, to 1.01 percent at 4:20 p.m. London time after dropping to a record 0.951 percent on Aug. 15. The rate declined 10 basis points last week. The 1.5 percent bund due in May 2024 slid 0.57, or 5.70 euros per 1,000-euro ($1,336) face amount, to 104.49.
The rate on French 10-year debt climbed seven basis points to 1.41 percent and the yield on similar-maturity Dutch bonds added seven basis points to 1.20 percent.
U.S. 10-year yields increased four basis points to 2.38 percent, and the Stoxx Europe 600 Index of shares gained 1.2 percent.
The rate on Ireland’s 10-year securities rose two basis points to 2 percent after falling as much as four basis points to 1.949 percent, the lowest level since Bloomberg started collecting the data in 1991.
Ireland is recovering from the collapse of its real-estate market after a decade-long housing boom. The crash prompted the country to take an international bailout. Ireland exited the rescue program in 2013 and its economy will grow by 3.5 percent this year, according to Dublin-based Davy, Ireland’s largest securities firm.
“Market financing conditions have steadily improved over the past two years,” Fitch said in the statement. Economic growth will become more balanced “as domestic demand turns positive driven by private consumption and investment,” it said.
Volatility on Belgian government bonds was the highest in euro-area markets, followed by those of France and Germany, according to measures of 10-year debt, the yield spread between two- and 10-year securities and credit-default swaps.
German securities returned 6.9 percent this year through Aug. 15, Bloomberg World Bond Indexes show. Ireland’s earned 11 percent and France’s 8.5 percent, both trailing top-performer Greece, whose bonds returned 27 percent.
To contact the reporter on this story: David Goodman in London at firstname.lastname@example.org
To contact the editors responsible for this story: Paul Dobson at email@example.com Keith Jenkins, Todd White