German Bonds Advance as Drop in Exports Spurs Demand for Safety

Germany’s bonds rose, with 10-year yields dropping the most in a week, after a report showed the nation’s exports fell more than analysts forecast on concern the debt crisis is weakening economies across the region.

The 10-year bund yield fell from the yesterday’s five-week high after the government sold 3.4 billion euros ($4.2 billion) of the securities and Fitch Ratings affirmed Germany’s AAA rating. Greek 10-year bonds advanced even after Standard & Poor’s revised the outlook on the nation’s below-investment-grade credit rating to negative. Spanish and Italian two-year notes fell for the second day. Companies including ING Groep NV and Securitas AB reported earnings that missed estimates.

Bunds are rising from “a combination of softening economic data, coupled with some weaker-than-expected earnings figures,” said Brian Barry, an analyst at Investec Bank Plc in London. “There remain many unanswered questions over the potential structure and scale of the actions which may be taken” to address the debt crisis, with “the safe havens benefiting as a result,” he said.

Germany’s 10-year yield fell six basis points, or 0.06 percentage point, to 1.42 percent at 4 p.m. London time. It earlier fell as much as nine basis points to 1.40 percent. The yield jumped nine basis points yesterday. The 1.75 percent bond due July 2022 advanced 0.56, or 5.60 euros per 1,000-euro face amount, to 102.98.

The two-year note yield slid two basis points to minus 0.05 percent. It fell to minus 0.097 percent Aug. 2, matching the lowest since Bloomberg began tracking the data in 1990.

Exports Drop

Exports in Europe’s largest economy dropped 1.5 percent from May, when they rose 4.2 percent, the Federal Statistics Office in Wiesbaden said today. Economists surveyed by Bloomberg News forecast a 1.3 percent decline.

Another report, from the Economy Ministry in Berlin, showed industrial production fell 0.9 percent in June from May, when it gained a revised 1.7 percent.

Germany sold 1.75 percent bunds due July 2022 at an average yield of 1.42 percent, the Bundesbank said. The nation last auctioned 10-year bonds on July 11 at a yield of 1.31 percent, the lowest rate for a bund sale.

Investors bid for 6.26 billion euros of the securities, versus the maximum target of 4 billion euros, with a so-called bid-to-cover ratio of 1.84 compared to 1.5 times last month.

“The stronger bid-to-cover shows that there is still a strong demand for safe-haven assets,” Lyn Graham-Taylor, a London-based fixed income strategist at Rabobank, wrote in an e-mailed note. “This fits with our own view that the crisis must once again worsen in order to force Spain to seek a bailout at the sovereign level.”

ECB Pledge

Italian and Spanish yields plunged last week after European Central Bank President Mario Draghi said at press conference on Aug. 2 that the bank could purchase government bonds in unison with the European Financial Stability Facility. Nations will need to make a request before the central bank or European bailout funds will buy their bonds, he said.

Italian two-year note yields climbed one basis point to 3.20 percent after touching 3.37 percent. The rate on similar-maturity Spanish debt also advanced one basis point, to 3.86 percent, after dropping more than 1.4 percentage points in the days following Draghi’s announcement.

The Stoxx Europe 600 Index tumbled 0.1 percent amid concern the euro crisis is eating into corporate earnings. ING reported second-quarter net income of 1.17 billion euros, missing analyst estimates of 1.26 billion euros. Securitas had net income of 337 million kronor ($50.3 million), trailing the average forecast of 422 million kronor.

Greek Outlook

The yield on the Greek bond due February 2023 slid 32 basis points to 24.28 percent, with the price climbing to 19.84 percent of face value.

The change of outlook on Greece’s CCC rating, eight levels below investment grade, reflects the risk of a downgrade if the nation is unable to obtain its next disbursement of bailout loans from the European Union and International Monetary Fund rescue package, S&P said yesterday in a statement.

German debt returned 2.9 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish securities fell 4.1 percent, while Italy’s debt rose 9.2 percent, the gauge showed.

Volatility on Dutch bonds was the highest in euro-area markets today, followed by the Finland and Germany according to measures of 10-year debt, the spread between two-year and 10-year securities and credit-default swaps. The Dutch 10-year yield slipped five basis points to 1.73 percent.

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