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German Bund Yields Reach Three-Week High Before ECB Rate Meeting

German Government Bonds Fall a 2nd Day Before 30-Year Debt Sale
Germany’s 10-year bund yield rose two basis points, or 0.02 percentage point, to 1.69 percent at 9:51 a.m. London time after reaching 1.71 percent, the highest since July 8. Photographer: Krisztian Bocsi/Bloomberg

July 31 (Bloomberg) -- Germany’s 10-year government bond yields rose to the highest level in three weeks amid speculation the European Central Bank will refrain from signaling further stimulus at a monthly meeting tomorrow.

Benchmark bunds ended trading little changed even after falling when a government report showed German unemployment unexpectedly fell this month, damping demand for the region’s safest securities. Germany’s borrowing costs increased as the nation sold 1.63 billion euros ($2.16 billion) of 30-year securities. Italian and Spanish bonds were also little changed.

“Given the way the market is trading right now, there’s no inkling or suggestion that they are going to do something,” said Orlando Green, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London, referring to ECB policy makers. “The bund is actually retreating.”

Germany’s 10-year yield was little changed at 1.67 percent at the 5 p.m. close of trading in London after climbing to 1.72 percent, the highest level since July 8. The price of the 1.5 percent bund maturing in May 2023 was 98.48.

The ECB’s governing council will leave its key rate unchanged at a record-low 0.5 percent at its meeting in Frankfurt, according to all except one of 63 economists surveyed by Bloomberg News.

German unemployment dropped by a seasonally adjusted 7,000 to 2.93 million, the Nuremberg-based Federal Labor Agency said. Economists predicted it would remain unchanged, according to a Bloomberg News survey.

Debt Auction

The 30-year bund yield fell one basis point to 2.47 percent after today’s debt sale.

Germany sold the securities at an average yield of 2.47 percent, up from a record-low 2.16 percent at a previous auction on April 24. Investors bid for 1.6 times the amount on offer, versus 1.5 times in April.

The U.S. economy grew at an annual rate of 1.7 percent last quarter, compared with 1.1 percent in the previous three months, the Commerce Department said. American companies boosted employment by 200,000 in July, the ADP Research Institute said. The median forecast of economists surveyed by Bloomberg was for a gain of 180,000. The Labor Department will release monthly job data on Friday.

Federal Reserve policy makers are meeting today in Washington. Chairman Ben S. Bernanke said on May 22 that the central bank could start scaling back its bond purchases in its “next few meetings” if the U.S. employment outlook showed sustainable improvement.

‘Important Driver’

“The more important driver is likely to be what is coming out of the U.S.,” said Rasmus Rousing, a fixed-income strategist at Credit Suisse Group AG in Zurich. “That will be the main driver until we see if the payrolls continue to improve because a lot is expected in terms of the Fed forecast to materialize on the employment side.”

Italy’s 10-year yield was at 4.41 percent and the rate on similar-maturity Spanish securities was 4.65 percent.

Portuguese 10-year yields were little changed at 6.39 percent after dropping as much as 13 basis points.

The combined holdings of Portuguese debt at the nation’s three largest publicly traded banks rose 11.5 percent to 16.15 billion euros in the second quarter from 14.49 billion euros in the previous three months, filings from the lenders showed. The increase came after the country returned to bond markets.

German bonds lost investors 1.3 percent this year through yesterday, according to Bloomberg World Bond Indexes. Italian securities returned 2.9 percent and Spain’s rose 6.2 percent.

To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net; Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net

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