German bunds fell, pushing 10-year yields to the highest level in a week, as European Central Bank President Mario Draghi said euro-area economic indicators had steadied, damping demand for the safest assets.
Benchmark bunds extended last week’s decline as economists forecast a gauge of German business confidence due to be announced in two days’ time rose in December. France’s bonds dropped as the nation sold 6.3 billion euros ($8.29 billion) of bills. Italian notes advanced. Draghi’s comments after the ECB’s Dec. 6 policy meeting fueled speculation the central bank’s refinancing rate, or even the deposit rate, may be lowered next year to boost growth in the euro region.
“The big picture is that Draghi is putting the safety mechanisms in place for the euro region and the market sees the ECB as providing a credible back stop,” said Marius Daheim, a senior fixed-income strategist at Bayerische Landesbank in Munich. “Bund 10-year yields might rise another few basis points. I don’t see any events that would cause a major move before the year end.”
Germany’s 10-year bund yield climbed three basis points, or 0.03 percentage point, to 1.37 percent at 4:39 p.m. London time after rising to 1.39 percent, the highest level since Dec. 5. The 1.5 percent bond due September 2022 dropped 0.24, or 2.40 euros per 1,000-euro face amount, to 101.14.
“We are ending the year on a positive note,” Draghi told European parliament legislators in Brussels, adding recent economic “indicators have stabilized at low levels.”
The Munich-based Ifo institute’s business climate index climbed to 102 from 101.4 in November, according to the median estimate of 43 analysts in a Bloomberg News survey before the data is released on Dec. 19.
“The Ifo is the highlight of the week and if it is improving like other indicators it should put some pressure on bunds,” said Christian Reicherter, an analyst at DZ Bank AG in Frankfurt. “There is a short-term downtrend in bunds.”
Daheim said he expects bund yields to close the year at around 1.40 percent.
France’s 10-year yield climbed four basis points to 2.01 percent after rising to 2.02 percent, the highest level since Dec. 6.
Italy’s two-year yield dropped six basis points to 2 percent. The yield on similar-maturity Spanish notes was little changed at 2.89 percent.
An agreement among European Union finance ministers on Dec. 13 to implement a single supervisory mechanism for euro-area lenders is positive for the credit ratings of the region’s banks and governments, Moody’s Investors Service said.
The pact, which paves the way for Europe’s rescue fund to inject capital directly into banks “will weaken the link between ailing sovereigns and their banking systems,” Moody’s analysts Alain Laurin and Alastair Wilson wrote in the company’s credit outlook today.
German bunds returned 4.1 percent this year through Dec. 14, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Italian debt gained 20 percent and Spanish bonds rose 5.3 percent.