German Bonds Fall as France, Spain Hold Government Debt Sales

German bonds fell for a second day as government debt sales by France and Spain diminished investors’ demand for the euro-region’s safest assets.

The declines pushed the yield on the two-year note to the highest in almost seven weeks, while the 10-year bund yield reached the highest in more than a month. France sold 10.3 billion euros ($13.5 billion) of conventional and index-linked bonds. Spain auctioned 4 billion euros of debt due 2020 and 2041.

“Bunds are lower as the market makes room for today’s supply,” said Orlando Green, assistant director of capital markets strategy at Credit Agricole Corporate & Investment Bank in London. “Supply is at the center of attention, especially when it’s peripheral debt.”

The yield on the 10-year bund, Europe’s benchmark security rose 7 basis points to 2.48 percent as of 4:35 p.m. in London. It earlier reached 2.49 percent, the highest since Aug. 11. The 2.25 percent security maturing in September 2020 fell 0.64, or 6.4 euros per 1,000-euro face amount, to 97.99. The two-year note yield gained 6 basis points to 0.81 percent, after rising to 0.83 percent, the highest since July 30.

German bonds have declined this month, with the 10-year yield advancing 36 basis points, amid reports that suggest the global economic recovery may be gaining traction. Data on Sept. 11 showed China output rose 13.9 percent in August from a year earlier, faster than economists forecast.

Euro-Region Growth

The Brussels-based European Commission said in a report Sept. 13 that gross domestic product in the 16-nation euro area may increase 1.7 percent this year instead of a previously projected 0.9 percent.

Bunds stayed lower after investors bid for 2.32 times the amount on offer of the Spanish bond due 2020. That compares with a so-called bid-to-cover ratio of 1.89 times at the last auction of similar-maturity securities on June 17. Investors bid for 2.1 times the amount of the Spanish 2041 security on sale, down from a 2.45 times cover at the previous auction of the same bonds, also on June 17.

“It looks like there’s solid investor-based demand for higher-yielding paper,” Credit Agricole’s Green said after the Spanish auction results.

The auctions of French government debt also attracted stronger demand than at previous sales. Investors bid for 4.4 times the amount of 2013 notes on offer, compared with a bid-to-cover ratio of 2.4 at the previous sale on June 17.

France’s Total

The country has raised 88 percent of its funding program for this year, compared with 84 percent during the same period in 2009, Agence France Tresor said in an e-mailed note.

Portugal plans to sell bonds maturing in 2014 and 2020 on Sept. 22, debt agency IGCP said today on its website.

The auctions will raise between 750 million euros and 1 billion euros, with a minimum sale of 300 million euros for each of the two bonds, IGCP said.

The extra yield investors demand to hold Spanish 10-year debt instead of bunds narrowed 4 basis points to 172 basis points. The so-called yield spread between French and German 10-year bonds was little changed at 35 basis points. The Portuguese-German 10-year yield spread widened 9 basis points to 346 basis points.

“The high frequency of Portuguese issuance has meant that investor appetite has increasingly waned for additional paper,” Green wrote in an e-mailed report. That “suggests there will be some further cheapening ahead of the auctions.”

German bonds have returned 8.4 percent this year, compared with an 7.8 percent gain for U.S. Treasuries, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. French securities have gained 8.1 percent, Spanish debt has risen 1.2 percent, while Portuguese bonds have lost 4.7 percent, the indexes show.

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