Germany’s bonds rose, with 10-year bunds snapping a three-day decline, as demand from investors increased at a 5 billion-euro ($6.59 billion) auction of new five-year notes.
European government bonds rallied after Executive Board member Joerg Asmussen said the European Central Bank was considering buying asset-backed securities to support lending to small and medium-sized enterprises. Portugal’s 10-year yields dropped to the lowest level since August 2010 after the nation sold securities maturing in 2024 via banks yesterday. Spain plans to sell as much as 4.5 billion euros of bonds due between 2016 and 2026 tomorrow.
“The German auction went OK,” said Owen Callan, an analyst at Danske Bank A/S in Dublin. “Germany’s notes aren’t cheap, they yield very little but 5 billion euros is not a lot to sell. Now people are really trying to figure out what these comments from the ECB mean and what’s next and whether the rally in higher-yielding assets has further to go.”
Germany’s 10-year yield dropped three basis points, or 0.03 percentage point, to 1.27 percent at 4:37 p.m. London time after rising to 1.31 percent yesterday, the highest level since April 11. The 1.5 percent bund due in February 2023 gained 0.27, or 2.70 euros per 1,000-euro face amount, to 102.105.
The five-year yield dropped two basis points to 0.37 percent after climbing six basis points yesterday, the biggest increase since Jan. 28.
Germany received bids for 8.508 billion euros of the new five-year notes compared with its target of 5 billion euros, the Bundesbank said. The government allotted 4.047 billion euros of the securities at an average yield of 0.38 percent, versus 0.33 percent at the previous auction on April 3. The record-low auction yield for five-year notes is 0.31 percent on Aug. 1.
Referring to an article published in German newspaper Die Welt saying the ECB is considering buying asset-backed securities, the ECB’s Asmussen said: “It’s part of the ongoing work that we have to see what we can do to spur SME lending.”
He also told lawmakers in Brussels that policy makers “have an open mind to look at all things we can do within our mandate, and this relates to how can the market for asset-backed securities, especially backed by SME loans, be revived in Europe, of course under strict supervision.”
Italian 10-year yields dropped three basis points to 3.84 percent, while similar-maturity Spanish yields fell one basis point to 4.10 percent.
The ECB cut its benchmark rate to a record low of 0.5 percent at its most recent policy meeting on May 2 and President Mario Draghi said the central bank had an open mind about a negative deposit rate.
Portugal’s 10-year bonds gained after yesterday’s sale attracted demand for more than three times the amount the government was seeking.
The yield on the 4.95 percent bond due in October 2023 dropped nine basis points to 5.43 percent, the lowest level since Aug. 31, 2010.
“We are quite happy” with the sale, Portugal’s debt chief Joao Moreira Rato said yesterday in a telephone interview. “We have more than 360 investors and the book was three-times oversubscribed. It was a big worry of ours to price well and to have the right size so I hope it performs in the next few weeks.”
Irish two-year notes were little changed after yields fell as much as four basis points to 0.742 percent, the lowest since Bloomberg began tracking the securities in November 2003.
Volatility on Finnish bonds was the highest in euro-area markets today followed by those of the Netherlands and Portugal, according to measures of 10-year debt, the yield spread between two- and 10-year securities, and credit-default swaps.
German bonds returned 0.5 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Portuguese securities gained 5.9 percent and Irish bonds rose 8.9 percent.