German government bonds snapped a five-day decline as the European Union followed the U.S. in increasing sanctions on Russia over its efforts to annex Crimea, boosting demand for the safest assets.
Benchmark 10-year bund yields trimmed their biggest weekly increase since December as EU leaders added 12 names to their list of Russians and Ukrainians punished with asset freezes and travel bans. European bonds slid yesterday after Federal Reserve Chair Janet Yellen signaled the central bank is moving toward raising interest rates. Greek securities were little changed after Standard & Poor’s affirmed the nation’s credit rating.
“Markets are keeping an eye on developments with Russia, rather than reacting to it,” said Marc Ostwald, a strategist at Monument Securities Ltd. in London. “We’ve had a shaking of the tree from the Fed this week and there will be an impact across European bonds if you get a sizable upward move in Treasury yields.”
Germany’s 10-year yield fell two basis points, or 0.02 percentage point, to 1.63 percent at 4:15 p.m. London time, paring this week’s increase to nine basis points, the most since the period ended Dec. 6. The 1.75 percent bund due in February 2024 rose 0.135, or 1.35 euros per 1,000-euro ($1,379) face amount, to 101.075.
The EU acted a day after the U.S. penalized 20 Russian officials and business leaders with ties to Russian President Vladimir Putin. The confrontation is the worst between the West and Russia since the Cold War ended more than two decades ago.
French 10-year yields declined three basis points to 2.16 percent, while similar-maturity Dutch rates dropped three basis points to 1.84 percent and Austria’s fell three basis points to 1.89 percent.
S&P’s affirmed Greece’s sovereign credit rating at B-, six steps below investment grade, saying the nation’s debt level remains large even as its fiscal performance improves.
Greece will probably sell bonds for the first time in four years before May as the country seeks to rebuild its finances following an international bailout, Infrastructure Minister Michalis Chrisochoides said March 18.
Greek 10-year yields fell four basis points to 6.92 percent after dropping to 6.62 percent on March 6, the lowest level since May 2010.
European bonds are still headed for a weekly decline after Yellen indicated after the Fed’s two-day meeting ended on March 19 that the central bank’s bond-buying program will wind down by year-end as forecast while a rate increase may follow in about six months.
The Fed dropped a link between its benchmark interest rate and a specific level of unemployment, giving itself room to keep borrowing costs low at least until next year.
Spanish 10-year yields fell one basis point today to 3.35 percent, having increased two basis points this week. Similar-maturity Italian yields dropped two basis points to 3.41 percent, little changed since March 14.
German bunds returned 2 percent this year through yesterday, according to Bloomberg World Bond indexes. French securities earned 2.1 percent and those of the Netherlands gained 2 percent.