Bond Investors Look Beyond Selloff to Auctions, Data

With German 10-year bond yields climbing above 1 percent this week for the first time since September, investors will be looking to next week’s auction and inflation data for signs the selloff has run out of steam.

Europe’s benchmark government securities were little changed as investors assessed the state of the region’s economy. Final data due on June 17 will confirm consumer prices rose for the first time in six months in May after a deflation scare prompted the European Central Bank to unleash its 1.1 trillion-euro ($1.2 trillion) bond-buying program. Germany plans to auction 3 billion euros of 10-year bunds the same day.

“It’s very dramatic right now,” Erik Nielsen, chief Global economist at UniCredit Bank AG, said in an interview on Bloomberg Television’s “Countdown” with Francine Lacqua. “Once we come into the summer months, so within a few weeks, the flow story, the redemptions and the new issuance and all the standard money flows will be supportive” for bonds.

German 10-year bond yields fell one basis point, or 0.01 percentage point, this week to 0.83 percent as of the 5 p.m. London close Friday. The 0.5 percent bund due in February 2025 rose 0.095, or 95 euro cents per 1,000-euro face amount, to 96.905. The yield touched 1.06 percent on June 10, the highest level since Sept. 19. That’s up from a record low of 0.049 percent reached as recently as April 17.

The yield may decline 10 to 15 basis points in the next few months before climbing later in the year, UniCredit’s Nielsen said.

Yields Surge

Euro-area sovereign bond yields have surged from record lows as signs of inflation indicated the ECB’s purchase plan is succeeding. Annualized consumer prices rose 0.3 percent in May, matching initial estimates, according to the median forecast of economists in a Bloomberg survey.

Italy’s 10-year bond yields reached 2.42 percent on June 10, the most since November, while Spain’s climbed to an eight-month high of 2.40 percent, a day before the nations auctioned a combined 11.8 billion euros of debt.

Germany last sold 10-year debt on May 13 at an average yield of 0.65 percent, compared with a record-low 0.13 percent at a previous auction on April 15. France and Spain also plan to sell bonds, with auctions scheduled for June 18.

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