Germany’s 10-year government bonds fell relative to their higher-yielding peers as a rally in European stocks sapped demand for the safest assets.
Longer-dated securities trailed behind those with shorter maturities as a slowdown in China’s stock-market rout prompted investors to pare bets that lower commodity prices would hamper consumer-price growth. Ten-year German yields rebounded from the lowest level in three weeks and climbed versus their Spanish peers for the first time in three days.
“For the time being at least, the repercussions from the Chinese stock market dropping will be rather limited,” said Christian Lenk, a fixed-income analyst at DZ Bank AG in Frankfurt. “Inflation expectations had come down a little bit in the light of the weak oil price and this had led to the long end outperforming recently. Now we’re seeing a little reversal of that.”
The yield on Germany’s 10-year bund was little changed at 0.69 percent as of 4:54 p.m. London time, having risen as much as five basis points to 0.74 percent. The price of the 1 percent security due in August 2025 was at 103 percent of face value. The yield has risen from as low as 0.67 percent on Monday, the lowest since July 8.
Spanish 10-year bonds declined two basis points to 1.91 percent, pushing the spread over equivalent German debt down two basis points to 122 basis points. Italian 10-year bonds also outperformed bunds, with the yield gap dropping two basis points to 118 basis points.
German securities had benefited from rising investor appetite for haven assets in the past week amid the turmoil in China, while falling oil prices were seen by traders as increasing chances that the European Central Bank would expand its stimulus program.
German bunds returned 0.6 percent in the past week through Monday, compared with gains of 0.3 percent for Italian securities and 0.2 percent for Spanish debt, according to Bloomberg World Bond Indexes. The Stoxx Europe 600 index rose 1.1 percent today, its biggest gain in eight trading sessions.
The extra yield that 30-year German securities offer over two-year notes widened one basis point to 161 basis points, from as low as 157 basis points on Monday.
Shorter-dated securities respond more to the outlook for monetary policy while those with longer maturities tend to reflect investor expectations for inflation.