German bonds had their first weekly drop this month as euro-area economic reports that beat analyst estimates reduced demand for the region’s safest assets.
The benchmark 10-year yield was two basis points from the highest level in two weeks before the European Central Bank meets next week to review monetary policy. Italy’s 10-year bonds fell for a fourth day as the nation prepared to sell a combined 6.75 billion euros ($8.96 billion) of bonds. Greece’s bonds advanced for a second day as euro-area governments approved the release of a 2.5 billion-euro loan instalment to tide the nation through the coming weeks.
“The upbeat economic data from the euro zone pushed yields back up,” Marius Daheim, a senior fixed-income strategist at Bayerische Landesbank in Munich said, referring to purchasing managers’ indexes. “We should be trading roughly between 1.50 to 1.70 percent. Everybody is holding back today to see what the next week will bring.”
Germany’s 10-year yield was little changed at 1.67 percent as of 5 p.m. London time yesterday having increased 15 basis points, or 0.15 percentage point, this week. It reached 1.69 percent yesterday, the highest since July 9. The price of the 1.5 percent bond due in May 2023 was at 98.51.
A purchasing managers index showed euro-area factory output unexpectedly expanded in July for the first time in two years. The gauge rose to 50.1 this month from 48.8 in June, Markit Economics said on July 24. A reading above 50 indicates growth. The Ifo Institute’s German business climate index, based on a survey of 7,000 executives and published yesterday, increased to 106.2 from 105.9 in June.
Italy’s benchmark 10-year yield rose less than one basis point after climbing to the highest level in a week even as it sold 3 billion euros of zero-coupon bonds today. The yield was at 4.40 percent after climbing to 4.44 percent, the highest level since July 18.
The Treasury in Rome today sold the zero-coupon securities due in June 2015 at 1.857 percent, down from 2.403 percent at the previous auction of similar-maturity debt on June 25. Investors bid for 1.56 times the amount offered, versus 1.48 times last month.
Italy will sell 3 billion euros of five-year notes and 3.75 billion euros of bonds due in March 2024 on July 30.
Italy, the euro area’s biggest bond market, is set to repay about 34 billion euros of coupons and redemptions to investors next month, according to data compiled by Bloomberg.
“In cash terms the auction is more than offset by the cash that the market’s going to receive so I’m fairly confident the auction is ultimately going to go well and pressure on the market is ultimately going to prove transitory,” said Peter Chatwell, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London.
Greece’s bonds gained after European Commission spokesman Simon O’Connor told reporters the country would get 2.5 billion euros of aid from the European Financial Stability Facility and 1.5 billion euros of income generated to national central banks from the securities markets program to tide it through the coming weeks.
A German parliament committee votes on July 29 to give the go-ahead for Germany’s contribution.
The Greek 10-year yield fell 15 basis points to 10.07 percent after dropping to 10.03 percent on July 23, the lowest level since June 19.
Volatility on Dutch bonds was the highest in euro-area markets today followed by those of Greece and Belgium, according to measures of 10-year debt, the yield spread between two- and 10-year securities, and credit-default swaps.
Italian securities returned 3.1 percent this year through yesterday, according to Bloomberg World Bond Indexes. Greek debt rose 19.4 percent and German bonds handed investors a loss of 1.3 percent.