Spanish government bonds led gains in European securities as a report showing U.S. payrolls climbed last month less than economists predicted fueled speculation that the Federal Reserve will maintain monetary stimulus.
Spain’s two-year notes advanced for a fifth day as the country sold 3.52 billion euros ($4.85 billion) of three- and nine-month bills. Italy’s two- and 10-year yields fell to the lowest levels since June and the rate on Germany’s 10-year bund dropped to a two-week low. German 30-year securities rose for a fourth day before the country auctions 2 billion euros of the debt tomorrow.
“The periphery is simply benefiting from the idea that the Fed and other central banks will be very careful,” said Elwin de Groot, senior market economist at Rabobank Nederland in the Dutch city of Utrecht, referring to the euro area’s lower-rated nations. “The scenario is where interest rates stabilize or even fall a bit, and at the same time risky assets do well. As long as the data is not too weak but not strong enough for the Fed to start tapering, this is almost the ideal Goldilocks scenario.”
Spain’s 10-year bond yield dropped six basis points, or 0.06 percentage point, to 4.22 percent at 4:18 p.m. London time after falling to 4.19 percent, the lowest since Oct. 7. The 4.4 percent security due in October 2023 rose 0.505, or 5.05 euros per 1,000-euro face amount, to 101.48. The nation’s two-year note yield decreased nine basis points to 1.59 percent.
Italy’s 10-year yield fell seven basis points to 4.12 percent after touching 4.10 percent, the lowest level since June 5. The two-year note yield dropped for a ninth day, declining as much as eight basis points to 1.35 percent, also the lowest since June 5.
The addition of 148,000 workers in the U.S. followed a revised 193,000 increase in August that was larger than initially estimated, Labor Department figures showed today in Washington. The median forecast of 93 economists surveyed by Bloomberg was for a 180,000 advance.
The U.S. unemployment rate fell to 7.2 percent, the lowest level since November 2008. The report, delayed by the 16-day partial government shutdown that ended Oct. 17, was originally slated for Oct. 4.
Germany’s 10-year bund yield fell five basis points to 1.80 percent after reaching 1.79 percent, the lowest since Oct. 9. Rates on U.S. Treasury notes with a similar maturity dropped eight basis points today to 2.53 percent.
Germany last sold 30-year bonds on July 31 at an average yield of 2.47 percent, compared with a rate of 2.16 percent at a previous auction on April 24. Thirty-year bund yields fell five basis points to 2.67 percent today.
European government securities from Germany to Portugal have been supported amid speculation the fiscal dispute that closed down the U.S. government this month will derail the economic recovery and delay a reduction in monthly bond purchases by the Fed. The central bankers will pare the monthly pace of asset buying to $70 billion from $85 billion at their March 18-19 meeting, according to the median of 40 responses in a Bloomberg survey last week.
“The Fed is likely to sit on the sidelines in the next few months,” said Nick Stamenkovic, a fixed-income strategist at broker RIA Capital Markets Ltd. in Edinburgh. “This bodes well for risk markets and should keep Treasuries range bound.”
Volatility on Irish bonds was the highest in euro-area markets today, followed by those of the Netherlands and Austria, according to measures of 10-year debt, the yield spread between two- and 10-year securities and credit-default swaps.
Spanish bonds returned 9.6 percent this year through yesterday, according to Bloomberg World Bond Indexes. Italian securities gained 6 percent, while Germany’s lost 1.9 percent.