German government bonds rose, with 10-year yields dropping the most in seven weeks, as reports showed U.S. jobless claims increased and euro-area inflation slowed, boosting the prospects of more central-bank stimulus.
Germany’s two-year yields dropped below zero for the first time in a week, while French, Dutch and Austrian securities also advanced. Spanish and Italian bonds rose after the two nations sold 13 billion euros ($16.8 billion) of debt via banks over the past two days, signaling demand for their securities remains intact. The European Central Bank cut its main interest rate to a record low on May 2 to support the economy.
“The weakness of the euro economy means the ECB is keeping the door open for potential rate cuts down the line,” said Nick Stamenkovic, a strategist at RIA Capital Markets Ltd. in Edinburgh. “Unless we see signs of an improvement in the economy, I don’t really see bunds coming out of this range” between 1.20 percent and 1.40 percent, he said.
Germany’s 10-year bund yield dropped five basis points, or 0.05 percentage point, to 1.33 percent at 5 p.m. London time, after falling as much as six basis points, the most since March 27. The 1.5 percent security maturing in February 2023 rose 0.47, or 4.70 euros per 1,000-euro face amount, to 101.535.
The two-year note yield fell three basis points to minus 0.007 percent, the first time it has dropped below zero since May 9. A negative yield mean investors who hold the debt until maturity will receive less than what they paid for it.
A Labor Department report showed U.S. jobless claims climbed in the week ended May 11 to the most since March, while the Federal Reserve Bank of Philadelphia’s general economic index unexpectedly fell in May for the first time in three months. The U.S. consumer-price index dropped 0.4 percent, the biggest decrease since December 2008, after falling 0.2 percent in March, another government report showed in Washington.
The European Union’s statistics office in Luxembourg said the annual inflation rate in the common-currency bloc dropped to 1.2 percent last month from 1.7 percent in March. That’s the lowest since February 2010 and matched an earlier estimate.
Spain’s 10-year yield fell three basis points to 4.31 percent, dropping as much as nine basis points, the most since May 3. The rate climbed to 4.41 percent yesterday, the highest since April 25. Italy’s 10-year yield declined three basis points to 3.98 percent.
“This week has seen euro periphery continue to make good progress with their respective funding programs,” said Orlando Green, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “This limits sovereign tail risk in the coming months.”
Spain sold 7 billion euros of a new benchmark 10-year bond through banks on May 14. The syndication attracted bids exceeding 21 billion euros, according to a person with knowledge of the deal who asked not to be identified because they’re not authorized to speak about it. Italy yesterday sold 6 billion euros of 30-year bonds via banks.
France’s five-year notes rose as the nation sold 3.65 billion euros of the securities with borrowing costs close to a record low.
France allotted 1 percent notes due in May 2018 at 0.74 percent, compared with a record-low auction yield of 0.73 percent on April 18. The nation also sold debt due in 2015 and 2017, as well as 1.2 billion euros of inflation-linked bonds.
The French five-year note yield slipped five basis points to 0.72 percent.
Volatility on Belgium’s bonds was the highest in euro-area markets today followed by those of France and Finland, according to measures of 10-year debt, the yield spread between two- and 10-year securities, and credit-default swaps.
Germany’s bonds returned 1.8 percent over the past year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spain’s securities gained 18 percent and Italy’s earned 17 percent, the indexes show.