French and Belgian bonds led gains in European government securities amid speculation the four-month slide in the region’s fixed-income markets is almost over.
Yields on France’s 10-year securities fell from the highest in more than a year as President Francois Hollande’s minsters pledged less spending in 2014 as deficit cuts slow. Germany’s five-year note yield dropped after rising to the highest since December 2011 last week. Italy’s 10-year bonds fluctuated between gains and losses as the nation sold 11.5 billion euros ($15.3 billion) of bills today, while similar-maturity Spanish debt advanced for a second day.
“It’s a day for consolidation with slightly higher levels,” said Ciaran O’Hagan, head of European rates strategy at Societe General SA in Paris. “We see the overall trend continuing. The trend is risk-on, backed by geopolitics, better growth data and politicians in Europe keeping a steady ship.”
France’s 10-year yield fell four basis points, or 0.04 percentage point, to 2.59 percent at 5 p.m. London time after reaching 2.65 percent yesterday, the most since July 2012. The 1.75 percent bond maturing in May 2023 rose 0.36, or 3.60 euros per 1,000-euro face amount, to 92.90.
The rate on Belgium’s 10-year debt slid five basis points to 2.86 percent, while Austria’s dropped five basis points to 2.42 percent.
Even as the pace of France’s deficit-reduction slows, 15 billion euros of the 18 billion-euro narrowing of the budget gap will come from spending cuts, ministers told journalists in Paris today.
France’s budget shortfall will be 4.1 percent of gross domestic product this year and 3.6 percent in 2014, Finance Minister Pierre Moscovici said. The plans rely on gross domestic product growth of 0.1 percent this year and 0.9 percent in 2014, he added.
Germany sold 4.08 billion euros of 2 percent bunds due in August 2023 at an average yield of 2.06 percent, the highest since October 2011, compared with 1.8 percent at the previous sale on Aug. 14. Investors bid for 1.29 times the amount of securities allotted, down from 1.33 times last month and the lowest since February.
The yield on Germany’s 1.5 percent bund maturing in May 2023 fell two basis points to 2 percent. The rate reached 2.05 percent on Sept. 6, the highest for a 10-year benchmark since March 21, 2012.
Germany’s five-year note yield fell three basis points to 1.05 percent after climbing to 1.12 percent on Sept. 5, the most since Dec. 7, 2011.
“As we look around some key psychological levels, the markets may not be ready to push away from these levels such as 2 percent in the bund and 1 percent in the five-year,” said Orlando Green, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “There may be a reluctance to move away into a new trading range at this moment. There are event risks ahead.”
Italy’s 10-year bond yields rose above those of Spain for the first time in 18 months yesterday amid speculation a vote on whether to expel Silvio Berlusconi from Italy’s Senate will destabilize the coalition government. The delayed vote may occur on Oct. 15, an Italian Senator told reporters in Rome today.
Italy auctioned 8.5 billion euros of one-year bills at an average yield of 1.34 percent versus 1.05 percent at a previous sale on Aug. 12. The nation also sold 3 billion euros of three-month bills.
“We saw the impact of political instability on today’s auction,” Italian Prime Minister Enrico Letta said today at the Senate in Rome.
Italy returns to the market tomorrow with the sale of as much as 5.5 billion euros of bonds due in 2016 and 2028, as well as floating-rate notes maturing in 2018.
Italy’s 10-year yield was little changed at 4.53 percent. The rate on Spain’s 10-year bond dropped three basis points to 4.49 percent.
The additional yield, or spread, investors demand to hold Spanish five-year notes instead of similar-maturity German securities was at 236 basis points, the least since July 2011, according to data compiled by Bloomberg based on closing prices.
Volatility on French bonds was the highest in the euro-area markets today, followed by those of Austria and Belgium, according to measures of 10-year debt, the yield spread between two- and 10-year securities, and credit-default swaps.
French bonds lost 2.6 percent this year through yesterday, according to Bloomberg World Bond Indexes. German securities dropped 3 percent, while Italy’s returned 3 percent and Spain’s earned 7.8 percent, the indexes show.