Germany’s bonds advanced, with five-, 10- and 30-year yields dropping to record lows, as signs the global economy is losing momentum spurred demand for the euro area’s safest assets.
Benchmark 10-year bunds gained for a third week after a European report showed services and manufacturing output shrank in April, and the U.S. Labor Department said payrolls rose less than economists forecast. French bonds advanced for a third day before the nation votes in a presidential ballot this weekend. Greece will hold parliamentary elections. Italian and Spanish bonds gained.
“The latest employment report suggests U.S. labor-market conditions have softened in the early part of the second quarter, lifting bunds,” said Nick Stamenkovic, a strategist in Edinburgh at RIA Capital Markets Ltd., a broker for banks. “Uncertainty ahead of the weekend elections in Greece and France is also a supportive factor.”
The German 30-year yield dropped three basis points, or 0.03 percentage point, to 2.3 percent at 4:13 p.m. London time after falling to an all-time low 2.294 percent. The 2.5 percent bond maturing in July 2044 gained 0.775, or 7.75 euros per 1,000-euro ($1,312) face amount, to 104.41.
The 10-year yield declined three basis points to 1.59 percent after sliding to a record 1.58 percent. The yield fell 11 basis points this week. Five-year yields dropped as much as four basis points to an all-time low 0.546 percent.
The benchmark 10-year yield is poised to decline toward 1.5 percent, RIA Capital’s Stamenkovic said.
A euro-area composite index based on a survey of purchasing managers in services and manufacturing industries dropped to 46.7 from 49.1 in March, London-based Markit Economics said. That’s below an initial estimate of 47.4 on April 23. A reading of less than 50 indicates contraction.
U.S. employers added 115,000 workers in April, the least in six months, after hiring 154,000 in March, the Labor Department said in Washington. Economists surveyed by Bloomberg News forecast an increase of 160,000.
“The data just reinforces the current risk-averse mood that continues to support core bonds,” said Orlando Green, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London.
French bonds gained as five polls showed socialist candidate Francois Hollande leading before the May 6 vote. Hollande has called for a re-negotiation of the budget pact agreed by European leaders in March, saying it needs to place more emphasis on growth.
France’s 10-year yield dropped seven basis points to 2.84 percent after falling to 2.8 percent, the lowest level since March 5.
The extra yield investors demand to hold the securities instead of similar-maturity German bunds shrank four basis points to 126 basis points. The spread expanded to 149 basis points on April 20, the widest since Jan. 9
“A Hollande victory is largely priced in and it is probably limited to what extent he can reverse policy,” said Elisabeth Afseth, an analyst at Investec Bank Plc in London. “We are seeing more interest in buying at the wider levels,” she said, referring to the difference in yield between French and German bonds.
Spanish 10-year yields declined three basis points to 5.75 percent, and similar-maturity Italian yields dropped four basis points to 5.46 percent.
Greek bonds due February 2023 fell for a fourth day before the country holds parliamentary elections on May 6. The yield climbed 10 basis points to 20.58 percent.
German debt has returned 1.6 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. French bonds gained 2.6 percent, and Spanish securities fell 0.8 percent.