German government bonds capped their worst week since 1998.
Less than two months ago, Germany’s 10-year yield was on the verge of turning negative as European Central Bank buying pushed borrowing costs ever lower. Since then, yields have jumped in a selloff that continued this week amid nascent signs of inflation and European Central Bank President Mario Draghi’s perceived ambivalence toward the reversal. They stayed higher Friday after a report showed U.S. payrolls climbed in May by the most in five months.
“The rise has been very strong,” said Luca Cazzulani, a senior fixed-income strategist at UniCredit SpA. “Inflation surprised to the upside and there was an expectation that the ECB would be more dovish, whereas Draghi was more neutral and talked about having to get used to volatility. However, when talking about how yields are moving up, you should not forget they had been declining for several months.”
The yield on German 10-year bunds was little changed at 0.84 percent as of 5 p.m. London time Friday, after touching 0.996 percent the previous day, the most since September. The yield, which was as low as 0.049 percent in April, jumped 36 basis points this week, the most since October 1998.
The price of the 0.5 percent security due in February 2025 was 96.81 percent of face value, down from 100.12 on May 29.
The drop in the region’s benchmark securities and in other European bonds helped sustain the global fixed-income rout this week.
Euro-area securities declined Tuesday as a report showed inflation was returning to the currency bloc. Losses were compounded the next day as Draghi indicated the ECB would do nothing to combat higher volatility in markets. The drop left a Bloomberg index of euro-area bonds with a 0.6 percent loss this year through Thursday. As recently as April, it had a 4.6 percent return.
At 2.22 percent, the yield on Spanish 10-year bonds was about 38 basis points higher from May 29, as the securities fell for a sixth week. That’s their longest run of drops since June 2013.