European government bonds swung between gains and losses after stronger-than-forecast manufacturing reports across the region vied with data that missed analysts’ predictions in the U.S.
German bunds rose with Treasuries after a report showed U.S. manufacturing cooled in July. That reversed an earlier decline as euro-area manufacturing expanded by more than initially estimated, damping investor demand for the safety of fixed-income assets. Longer-maturity bonds of France and Austria underperformed their shorter-dated peers as investors prepared for debt sales from five of the euro zone’s governments this week.
“In light of the focus on longer-dated bonds on offer, we do expect some pressure on the ultra-long end,” said Hendrik Lodde, a fixed-income strategist at Frankfurt-based DZ Bank. “Especially after the recent bullish flattening, which had been driven by sinking inflation expectations due to commodity prices dropping.”
German 10-year bunds yields fell two basis points, or 0.02 percentage point, to 0.63 percent as of the 5 p.m. London close, after rising as much as three basis points. The 1 percent security due in August 2025 rose 0.155, or 1.55 euros per 1,000-euro ($1,096) face amount, to 103.60.
Spanish 10-year bonds declined the most in the region after the nation’s Treasury announced it will sell between 4 billion euros and 5 billion euros of debt later this week.
Austria is scheduled to sell securities due in 2025 and 2044 on Tuesday. France auctions bonds maturing from 2023 to 2060 this week. In previous years, the French debt agency has canceled August sales due to the summer lull.
Markit’s euro-region manufacturing index slipped to 52.4 from 52.5 in June, beating the initially reported reading of 52.2. A figure above 50 marks expansion.
In the U.S., the Institute for Supply Management’s index fell to 52.7 from a June reading of 53.5 that was the fastest since the start of the year.
“During the Greek crisis, I was concerned that the uncertainty would weigh on the real economy but, at least in core countries, that doesn’t appear to have been the case,” said Peter Chatwell, a rates strategist at Mizuho International Plc in London.
Core securities “are expensive relative to my measures of fair value, and I think the better trade to have on at this point is periphery spread-tighteners,” he said.
The premium investors demand to hold Italian debt over bunds was little changed at 1.14 percentage point, almost the narrowest in three months.