By David Goodman and Keith Jenkins
June 1 (Bloomberg) -- German, U.S. and U.K. yields fell to
all-time lows after Spanish Economy Minister Luis de Guindos
said the future of the euro is at stake, driving demand for the
safest government securities.
German two-year note yields fell below zero for the first
time and 10-year yields on Austrian, Dutch, Finnish and French
bonds dropped to records as data affirmed euro-region
manufacturing shrank in May. Spain’s 10-year yield exceeded 6.5
percent for a fifth day after de Guindos said yesterday that
we’re in a “very difficult situation.” The euro weakened to a
23-month low versus the dollar as euro-region unemployment rose
to the most on record and before today’s U.S. payrolls report.
“There is a real sense of impending panic spreading now
and that’s exacerbating all of these moves,” said John Wraith,
a fixed-income strategist at Bank of America Merrill Lynch in
London. “Safe havens are alive and well and risk aversion is
likely to intensify as long as Europe’s problems remain
The German two-year yield slid to as low as minus 0.002
percent, the first time the rate on the securities has been
negative, according to data compiled by Bloomberg, and was at
0.005 percent at 12:25 p.m. London time. The price of the zero
percent note due in June 2014 was at 99.99.
A yield below zero means investors will receive less in
repayments on the German securities when held through to
maturity than the amount they paid to buy them.
Danish and Swiss two-year rates were also negative,
according to data compiled by Bloomberg.
“It was only a matter of time, given the stressed
environment that we’re in in the euro area, that we saw a drop
to slightly negative levels,” Norbert Aul, a fixed-income
strategist at Royal Bank of Canada in London, said, referring to
German two-year yields. “If the 10-year yield falls to as low
as 1 percent, then everything out to three years has the
potential to go negative.”
The 10-year bund rate dropped two basis points to 1.18
percent after reaching 1.148 percent, the lowest since Bloomberg
began collecting the data in 1989. Its seven-week advance is the
longest run since May 27 last year. Five-year yields reached an
all-time low of 0.318 percent and 30-year bond yields touched
1.654 percent. Yields on U.K. gilts of all maturities dropped to
less than 3 percent for the first time. The U.S. Treasury 10-
year note rate declined to as low as 1.5223 percent.
“I don’t know if we’re on the edge of the precipice, but
we’re in a very, very, very difficult situation,” de Guindos
said yesterday. Ireland will start counting votes today on a
referendum on the European Union’s fiscal treaty.
The euro area is in real danger of disintegrating unless
policy makers revamp the bloc’s fiscal ties, Economic and
Monetary Commissioner Olli Rehn said.
“The way things are going and under the current structures,
the euro area has a significant risk of breaking up,” Rehn said
in a speech at a European Commission event in Helsinki. “We’re
either headed for a deterioration of the euro area or a gradual
strengthening of the European Union.”
Euro-area unemployment reached 11 percent in April and
March, the highest rate on record, the European Union’s
statistics office in Luxembourg said.
U.S. non-farm payrolls probably rose by 150,000 in May,
after the smallest gain in six months in April, according to the
median forecast of economists surveyed by Bloomberg News before
the report today.
Spain’s 10-year yield rose as much as seven basis points,
or 0.07 percentage point, to 6.63 percent. The yield premium, or
spread, over the Bloomberg Fair Value index of AAA rated
European debt was 510 basis points at yesterday’s close. It’s
been wider than 450 basis points every day this week. LCH
Clearnet Ltd., Europe’s biggest clearing house, increased the
cost of trading Irish and Portuguese debt by an extra 15 percent
when yield spreads for those securities sustained an increase
above that level.
Rachael Harper, a spokeswoman for LCH in London, declined
to comment on Spanish bonds when reached by phone today. “The
yield spread is one of many factors considered when determining
whether to increase margin required for European government
bonds,” she said in an e-mailed response to questions.
The cost of insuring against a default on Spanish
government bonds climbed to a record 614, according to data
compiled by Bloomberg. The euro fell as much as 0.4 percent to
$1.2312, the least since July 1, 2010.
Yields on 10-year German bunds will probably decline to 1
percent, BNP Paribas SA fixed-income strategists including
Matteo Regesta in London and Bulent Baygun in New York wrote
yesterday in a note to clients.
“The bund rally is showing no signs of exhaustion,” the
strategists wrote. “It is hard to envisage an effective
backstop to the current crisis being implemented in the short
term given the current disarray of policy makers in Europe.”
The rate on 10-year Italian bonds fell four basis points to
5.86 percent after rising to 5.96 percent. The two-year rate
climbed as much as 16 basis points to 4.60 percent.
Thailand, which shares Italy and Spain’s BBB+ rating at
Standard & Poor’s, has 10-year borrowing costs of 3.65 percent.
Volatility on French government bonds was the highest in
developed markets today followed by Ireland, Sweden and Finland,
according to measures of 10-year bonds, two- and 10-year yield
spreads and credit-default swaps.
French 10-year yields dropped as much as 11 basis points to
as low as 2.25 percent. The rate on similar-maturity Austrian
debt fell to 2.025 percent, Dutch 10-year rates retreated to
1.486 percent, and Finnish yields declined to 1.41 percent, all
the lowest on record.
A gauge of euro-area manufacturing decreased to 45.1 in May
from 45.9 in April, London-based Markit Economics said today.
The index for Spain fell to 42, from 43.5, Markit Economics
said. A figure below 50 indicates a contraction.
German debt has returned 4.7 percent this year, according
to indexes compiled by Bloomberg and the European Federation of
Financial Analysts Societies. Spanish securities have 5.2
percent, and Italian bonds rose 6.8 percent, the indexes show.
Treasuries earned 2.2 percent, with gilts making 3.1 percent.
For Related News and Information:
Top Fixed-Income News: TOP BON
European Debt Crisis News: EXT4
Bond Yield Forecasts: BYFC
Credit Ratings: CSDR
--With assistance from Lucy Meakin in London. Editors: Daniel
To contact the reporters on this story:
David Goodman in London at +44-20-7392-0717 or
Keith Jenkins in London at +44-20-7330-7543 or
To contact the editor responsible for this story:
Daniel Tilles at +44-20-7673-2649 or
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