Germany’s 10-year bonds advanced after data showing a slowdown in the nation’s manufacturing added to evidence the euro-area economy is headed for a recession, boosting demand for the safest securities.
Spanish 10-year securities underperformed all their euro-region peers as the currency bloc’s finance ministers gathered to discuss the region’s sovereign debt crisis, while Italian bonds also dropped. German two-year notes snapped two days of declines as an index measuring sentiment in the euro-area economy increased less than economists estimated this month.
“We appear to be in a risk-off environment, which favors safe assets such as bunds,” said Richard McGuire, a senior fixed-income strategist at Rabobank International in London. “The economic backdrop, on the whole, is supportive of core bonds.”
Germany’s 10-year yield fell four basis points, or 0.04 percentage point, to 1.48 percent at 4:49 p.m. London time, after climbing to 1.53 percent on Oct. 5, the highest since Sept. 26. The 1.5 percent bond due September 2022 rose 0.395, or 3.95 euros per 1,000-euro ($1,297) face amount to 100.21. The two-year note yield dropped two basis points to 0.04 percent.
German industrial production fell 0.5 percent in August from the previous month, when it gained a revised 1.2 percent, the Economy Ministry in Berlin said today. Analysts had forecast a drop of 0.6 percent, according to the median of 39 estimates in a Bloomberg News survey.
An index measuring sentiment in the euro-area economy by Germany’s Sentix research institute increased to minus 22.2 from minus 23.2 in September, missing the median forecast of 10 economists in a separate survey for a reading of minus 22.
Bunds advanced even as the Federal Statistics Office in Wiesbaden said today German exports jumped 2.4 percent in August from July, when they gained 0.4 percent. Economists forecast a 0.6 percent decline, according to another Bloomberg survey. Imports rose 0.3 percent.
Spanish bonds dropped, with 10-year yields rising three basis points to 5.72 percent. The rate earlier slid to 5.62 percent, the lowest level since Sept 14. The yield fell 25 basis points last week, the biggest decline since the five-day period ended Sept. 7, amid speculation the country is moving closer to requesting an international bailout.
The rate on Italian 10-year bonds increased two basis points to 5.08 percent.
European finance ministers gathered from 5 p.m. in Luxembourg today to discuss Spain’s overhaul effort and closer banking cooperation. Tomorrow, German Chancellor Angela Merkel makes her first visit to Greece since 2009.
The next day, Spain’s Prime Minister Mariano Rajoy travels for talks with French President Francois Hollande in Paris. Rajoy has said his government is considering a bailout request, while damping speculation that it will come soon. Spain has local elections this month and next.
The Canary Islands is among five regions to require assistance from the Spanish government’s 18-billion euro rescue fund, Antonio Beteta, deputy minister for public administrations, told lawmakers today. The regions will be able to borrow from the state at the Treasury’s cost of financing plus 30 basis points, he said.
Volatility on Irish government bonds was the highest in the euro-region markets today, followed by Finland, according to measures of 10-year or equivalent-maturity debt, the spread between two- and 10-year securities, and credit default swaps.
German bonds returned 2.8 percent this year through Oct. 5, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish securities advanced 2.1 percent, while Italy’s debt earned 16 percent.