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French Bonds Rise Before Redemptions as Belgian Securities Rally

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German Five-Year Notes Snap Two-Day Advance Before Debt Sales
Germany last sold five-year notes at an average yield of 0.61 percent on Sept. 12. Photographer: Michele Tantussi/Bloomberg

Oct. 10 (Bloomberg) -- French 10-year bonds advanced for a third day, outperforming benchmark German bunds, as investors bought the securities before existing debt matures this month.

Belgian securities rallied, sending 10-year yields to a record low, and Austrian debt also gained. Spanish bonds rose for the first time in three days as Prime Minister Mariano Rajoy traveled to Paris to meet French President Francois Hollande. German five-year notes slipped after the nation sold 3.1 billion euros ($4 billion) of the securities. Italy auctioned 8 billion euros of 12-month bills and 3 billion euros of three-month debt.

“Market focus is in the semi-core space at the moment,” said Norbert Aul, a rates strategist at Royal Bank of Canada in London, referring to the debt from countries with a rating below the top AAA grade. “France is rallying before redemptions. Austria and Belgium are going along with that.”

French 10-year yields fell three basis points, or 0.03 percentage point, to 2.20 percent at 4:19 p.m. London time. The 2.25 percent bond maturing in October 2022 rose 0.30, or 3 euros per 1,000-euro face amount, to 100.43. The yield difference, or spread, over similar-maturity German bunds dropped by six basis points to 70 basis points, after touching 82 basis points on Oct. 5, the most since Sept. 4.

France is due to pay back more than 20 billion euros of a 4.75 percent bond on Oct. 25, according to data compiled by Bloomberg.

Belgian Records

Belgian 10-year yields fell four basis points to reach 2.387 percent, an all-time low, with 30-year yields dropping to 3.227 percent, also a record. Austrian 10-year rates declined one basis point to 2 percent.

The yield spread between Belgian 10-year government bonds and their German equivalents narrowed three basis points to 92 basis points.

Belgium has sold about 34.9 billion euros of notes and bonds so far this year, relative to a target of 38.25 billion euros, which was increased by the debt agency in September.

“Markets have cottoned on to the fact that there’s only a little bit of issuance left to go and that’s helping the bonds,” said Harvinder Sian, a senior fixed-income strategist at Royal Bank of Scotland Group Plc in London. “Belgium is not the most liquid of the euro-region markets.”

German Auction

Germany sold five-year notes today at a yield of 0.53 percent. It last sold the securities at an average yield of 0.61 percent on Sept. 12. That compares with a record-low auction yield of 0.31 percent in August.

Germany’s five-year yield was little changed at 0.54 percent, after falling three basis points over the past two days. The 10-year bund yield increased two basis points to 1.50 percent.

Spain’s 10-year bond yield fell two basis points to 5.81 percent, and the rate on similar-maturity Italian debt declined one basis point to 5.10 percent.

Volatility on Ireland’s government bonds was the highest in developed markets today, followed by Portugal, according to measures of 10-year bonds, the spread between two- and 10-year securities, and credit default swaps.

Ireland’s bond maturing in October 2020 rose, pushing the yield down seven basis points to 4.95 percent, the lowest level since August 2010, according to data compiled by Bloomberg.

German bonds returned 3.1 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish securities advanced 1.5 percent, while French and Belgian debt earned 8.3 percent, and 14 percent, respectively.

To contact the reporters on this story: Emma Charlton in London at echarlton1@bloomberg.net; Neal Armstrong in London at narmstrong8@bloomberg.net

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net

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