Euro-area government bonds rose this week, with yields from France to Finland dropping to records, as the downing of a passenger plane stoked concern the Ukraine conflict will deepen, fueling demand for fixed-income assets.
Portuguese bonds climbed for the first week since June 13 even amid a slump in shares of Banco Espirito Santo SA, the nation’s second-largest bank. While German borrowing costs posted a record-low close, bunds still underperformed their higher-yielding counterparts as investors sought the best returns among the region’s safest assets.
“Fundamentals matter less in an environment like this,” said Orlando Green, a fixed-income strategist at Credit Agricole SA’s corporate and investment banking unit in London. “It’s very much driven by circumstance. Investors are looking for where they can pick up a little extra return through yield. You’ve seen that with Portugal having rallied despite everything that’s been going on.”
French 10-year yields slid seven basis points, or 0.07 percentage point, this week to 1.57 percent at the 5 p.m. close in London yesterday, when they dropped to 1.562 percent, the least since Bloomberg began collecting the data in 1990. The 1.75 percent security due November 2024 rose 0.63, or 6.30 euros per 1,000-euro ($1,351) face amount, to 101.66.
The average yield to maturity on euro-area debt fell to a record-low 1.2525 percent, according to the Bank of America Merrill Lynch Euro Government Index. The bonds have rallied since European Central Bank Governor Mario Draghi’s pledge two years ago to support the region’s sovereign bonds encouraged investors to buy them as a haven.
The yields on 10-year Austrian, Belgian, Dutch and Finnish bonds dropped to records as the United Nations Security Council said it will hold an emergency meeting over the shooting down of a Malaysian jet that killed all 298 people on board. Russia and Ukraine blamed each other for the catastrophe, threatening to escalate tensions between the two.
The benchmark German 10-year yield declined five basis points in the week to 1.16 percent, ending trade two days ago at a record-low 1.15 percent. The rate on similar-maturity Portuguese debt fell 20 basis points, the biggest weekly drop since the five days through April 18.
Portuguese government securities returned 15 percent this year through July 17, the best-performing euro-area sovereign debt market after Greece, according to Bloomberg World Bond Indexes. Their French peers gained 6.8 percent and Germany’s rose 5.5 percent.