German Bonds Look Past China Turmoil to Send Yields Full Circle

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German government bonds have come full circle since China roiled markets by devaluing the yuan.

Benchmark 10-year bund yields dropped nine basis points in two days after Chinese officials cut their currency’s reference rate, only to crawl higher as they vowed to intervene and stop excessive fluctuations. Demand for bunds also waned after Greek lawmakers approved a rescue package that may unlock as much as 86 billion euros ($96 billion). In contrast, the region’s stocks were headed for a weekly decline.

“If you net off everything that has happened this week -- the yuan, Greece and data -- nothing has really left a lasting impact,” said Peter Chatwell, a rates strategist at Mizuho International Plc in London. “The market has been pricing in downside risks from China for a long time. The fact that the currency now has more room to float just allows this to be expressed through a different channel.”

Germany’s 10-year bund yields were at 0.66 percent as of 4:45 p.m. London time, little changed from the close on Aug. 7. The yield reached 0.59 percent on Aug. 12, the lowest since June 2. On Friday, it increased three basis points, or 0.03 percentage point. The 1 percent security due August 2025 fell 0.26, or 2.60 euros per 1,000-euro face value, to 103.315.

The securities declined with U.S. Treasuries after data on Friday showed industrial production in the world’s largest economy exceeded analysts forecasts.

Gross domestic product in the euro area expanded 0.3 percent in the three months through June, the European Union’s statistics office said on Friday. That fell short of the median prediction by economists that the 0.4 percent pace of the first quarter would be maintained. A separate report showed that consumer prices in the currency bloc increased an annualized 0.2 percent last month, matching a previous estimate.

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