German 10-year bonds rose for a second day after European Central Bank Governing Council member Jens Weidmann said Ireland’s plan to rescue a failed bank may be in breach of government-funding regulations.
Benchmark 10-year bund yields approached the lowest level in three weeks after a report showed exports from the euro area declined the most in five months in December as the currency’s gains made European goods less competitive. Weidmann, who heads Germany’s Bundesbank, said an appreciating euro alone won’t trigger a cut in interest rates and the currency’s gains are justified by the economic outlook. Spanish 10-year bonds were little changed, set for their first weekly advance in five.
“The Weidmann comments show the Bundesbank is taking a very hard line” on Ireland, said Owen Callan, an analyst at Danske Bank A/S in Dublin. “The comments on the rate cut could have seen bunds falling, but, given the uncertain nature of them and their slightly risk-off nature, bunds are being supported.”
Germany’s 10-year yield fell one basis point, or 0.01 percentage point, to 1.63 percent at 2:45 p.m. London time, after dropping to 1.58 percent on Feb. 8, the lowest since Jan. 25. The 1.5 percent security due in February 2023 gained 0.095, or 95 euro cents per 1,000-euro ($1,335) face amount, to 98.79.
The nation’s two-year note yield was little changed at 0.18 percent, after falling to 0.16 percent on Feb. 8, the least since Jan. 24.
Ireland’s asset swap via its central bank extends the cost of rescuing the former Anglo Irish Bank Corp., easing the nation’s borrowing needs over the next decade by 20 billion euros. Under the plan, dubbed“ Project Red,” Ireland will exchange so-called promissory notes used to rescue the failed bank with 25 billion euros of government bonds with maturities as long as 40 years.
The transaction “has a fiscal nature, as stated by the Irish government, that’s clear enough,” Weidmann, who heads Germany’s Bundesbank, said in an interview on Feb. 13. The ECB will re-examine the issue and “has to make sure that its actions are in conformity with its rules and statutes,” he said. “I’m very concerned about monetary policy being too closely intertwined with fiscal policy and crossing the line to monetary financing.”
The ECB will examine the Irish swap further, the central bank’s President Mario Draghi said at a press conference today in Moscow, where he’s attending a Group of 20 meeting.
Ireland’s five-year note yield climbed two basis points to 2.76 percent.
Exports from the 17-nation currency bloc dropped a seasonally adjusted 1.8 percent from November, when they rose a revised 0.6 percent, the European Union’s statistics office in Luxembourg said today. That is the sharpest decline since July. Imports fell 3 percent and the trade surplus increased to 12 billion euros from 10.5 billion euros in the previous month.
Spanish 10-year bond yields slid two basis points to 5.18 percent, having dropped 19 basis points this week. The rate on similar-maturity Italian bonds fell five basis points to 4.36 percent, down 20 basis points from Feb. 8.
Volatility on Portuguese bonds was the highest in euro-area markets today, followed by those of the Netherlands and Italy, according to measures of 10-year or similar-maturity debt, the yield spread between two-year and 10-year securities, and credit-default swaps.
German bonds handed investors a loss of 1.6 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Italian debt returned 1.2 percent and Spanish securities gained 2.2 percent.