German government bonds rallied amid concern Japan’s nuclear disaster may be worsening in the wake of last week’s earthquake, boosting investor demand for the safest assets.
Ten-year bund yields slid to the lowest since Jan. 18 after the European Union’s energy chief said the situation at Japan’s Fukushima Dai-Ichi power plant was “out of control” and “catastrophic events” could occur in coming hours. Two-year notes reversed earlier losses that followed a report showing euro-area inflation accelerated at the fastest pace in more than two years. Portuguese bonds fell after Moody’s Investors Service downgraded the nation’s credit.
“Equity markets are trading in a jittery fashion and investors are plumping for safety, and that’s giving support to bunds,” said Nick Stamenkovic, an Edinburgh-based fixed-income strategist at RIA Capital Markets Ltd., a broker for banks and investors.
Yields on 10-year bunds sank as much as seven basis points to 3.065 percent, the lowest since Jan. 18, and were five basis points lower at 3.09 percent as of 4:13 p.m. in London. The 2.5 percent security due January 2021 rose 4.10 euro per 1,000-euro ($1,394) face amount to 95.09. Two-year note yields declined five basis points to 1.47 percent.
Stocks in Europe and the U.S. extended losses after EU Energy Commissioner Guenther Oettinger told a parliamentary committee in Brussels today that Japan faced a “major disaster.” Tokyo Electric Power Co. said a reactor containment vessel may have been breached at the earthquake-damaged nuclear facility north of Tokyo, risking further radioactive leaks.
A plan to drop water on damaged nuclear reactors from helicopters was suspended because of the risk of radiation, public broadcaster NHK said.
Belgium won’t sell bonds due June 2017 this week because of “continued market uncertainty” in the wake of the Japanese crisis, said Anne Leclercq, director for treasury and capital markets at the Belgian Debt Agency. European Central Bank council member Christian Noyer said policy makers will consider the effects of the Japanese disaster when discussing an interest rate decision in April, Handelsblatt reported.
Inflation in the 17-nation euro region quickened to 2.4 percent, up from 2.3 percent in January, the European Union’s statistics office said today, confirming a March 1 estimate. That exceeded the ECB’s 2 percent limit for a third month.
“I don’t think events in Japan will prevent the ECB from hiking,” said Stamenkovic. “The short end doesn’t look very attractive,” he added, referring to German notes.
Yields on 10-year Portuguese debt rose seven basis points to 7.48 percent, widening the additional yield investors demand to hold the securities instead of bunds by 12 basis points to 4.39 percentage points.
Moody’s cut Portugal two steps to A3, four notches above so-called junk status, and may make further reductions, according to a statement late yesterday. Moody’s cited a weaker economic outlook, risks to government deficit-reduction plans and the potential that banks will need recapitalizing.
Portugal sold 1 billion euros of bills due in March 2012 at an average yield of 4.331 percent, up from 4.057 percent at a previous auction of the same-maturity debt on March 2.
Germany sold almost 5 billion euros of two-year notes at an average yield of 1.53 percent today, attracting bids for 9.375 billion euros of the securities.