Germany’s bonds dropped for a second day as investors weighed what Federal Reserve Chairman Ben S. Bernanke will say about the central bank’s asset-purchase program when he holds a press conference tomorrow.
The 10-year bund yield rose from near the lowest level in a week after a German report showed investor confidence improved in June, damping demand for the euro area’s safest assets. Portuguese securities rose after the European Union said it may help the nation exit its aid program. Finland’s bonds declined as the nation auctioned 1.5 billion euros ($2 billion) of debt. Bernanke said last month the Fed could reduce quantitative easing if the job market shows sustainable improvement.
“The market is completely focused on the tapering topic,” said Marius Daheim, a senior fixed-income strategist at Bayerische Landesbank in Munich. “Bernanke will tread very carefully on the topic of QE tapering and that will fit very well with bund yields staying in a range of 1.50 to 1.60 percent.”
Germany’s 10-year bund yield rose five basis points, or 0.05 percentage point, to 1.57 percent at 4:32 p.m. London time. The rate fell to 1.51 percent yesterday, the lowest level since June 7. The 1.5 percent security due in May 2023 dropped 0.435, or 4.35 euros per 1,000-euro face amount, to 99.37.
The 10-year bund yield will climb to 1.60 percent in three months, Bayerische Landesbank’s Daheim forecast.
Bernanke said on May 22 the U.S. central bank could reduce its monthly purchases of $85 billion of Treasuries and mortgage-backed securities if the employment outlook shows sustained improvement.
An index of investor and analyst expectations in Germany climbed to 38.5 this month from 36.4 in May, the ZEW Center for European Economic Research in Mannheim said. That’s higher than the 38.1 forecast by the median of 38 estimates in a Bloomberg News survey of economists.
Portugal’s bonds rose after EU Economic and Monetary Affairs Commissioner Olli Rehn said in Brussels the EU is looking at possible “precautionary arrangements” that might help the nation and Ireland exit their aid programs.
The yield on Portuguese 10-year bonds slid 16 basis points to 6.09 percent. The rate on similar-maturity Irish debt was little changed at 3.90 percent.
European Central Bank President Mario Draghi said officials were considering further non-standard monetary policy tools.
Draghi has in recent months held out the possibility of charging lenders to hold cash at the ECB by introducing a negative deposit rate, one of several measures that may be considered in attempts stimulate the euro-area economy.
“We will look with an open mind at these measures that are especially effective in our institutional setup and that fall within our mandate,” Draghi said in Jerusalem. “Some of those measures may have unintended consequences. This does not mean that they should not be used, but it does mean that we need to be aware of those consequences and manage them appropriately.”
Finland auctioned 1 billion euros of bonds due in April 2023 at a record-low average yield of 1.774 percent and 500 million euros of 2042 securities at 2.547 percent. The nation last sold 10-year government bonds on Oct. 23 at 1.806 percent. It allotted 30-year debt the same day at 2.588 percent.
Finland’s 10-year bond yield climbed four basis points to 1.81 percent.
Germany is scheduled to auction 5 billion euros of 10-year bunds tomorrow. It last sold the securities at an average yield of 1.41 percent on May 22, up from a record low of 1.36 percent at a sale on April 17. Investors bid for 1.58 times the bunds on offer last month.
“Any nervousness ahead of Wednesday evening’s FOMC statement, along with the small back-up in yield recently, could support the auction,” Huw Worthington, a fixed-income strategist at Barclays Plc in London, wrote in an e-mailed investor report today.
Volatility on Danish bonds was the highest among European markets today followed by those of Sweden and Germany, according to measures of 10-year debt, the yield spread between two- and 10-year securities, and credit-default swaps.
Denmark’s 10-year yield rose five basis points to 1.68 percent after Danske Bank A/S, the nation’s biggest lender, was told by the country’s financial watchdog it had underestimated risky assets.
The Financial Supervisory Authority ordered the bank to adjust its models in a step that will force it to add about 100 billion kroner ($18 billion), or 13 percent, to risk-weighted assets “over time,” according to a statement late yesterday.
German bonds handed investors a loss of 0.7 percent this year through yesterday, according to Bloomberg World Bond Indexes. Spanish securities returned 5.7 percent and Italian bonds earned 3.1 percent, the indexes show.