Germany’s government bonds declined alongside those from Italy and Spain after data on both sides of the Atlantic pointed to an economic pick-up, limiting demand for fixed-income assets.
Yields on German bunds, Europe’s benchmark sovereign securities, rose after a core measure of U.K. price growth increased to its highest in five months, while the inflation rate unexpectedly rose. U.S. new-home construction climbed in July to the highest level in almost eight years, further weighing on bonds. That led to euro-area securities erasing gains they made earlier amid a slump in Chinese stocks.
“The higher-than-expected U.K. inflation data has had a significant role” in pushing European bonds down, according to Vincent Chaigneau, London-based global head of rates and foreign-exchange strategy at Societe Generale SA. “The opening had been bullish on renewed pressure on Chinese equities, but the mood reversed on the U.K. inflation number.” He said the U.S. housing data also helped push yields higher.
German 10-year bund yields rose two basis points, or 0.02 percentage point, to 0.64 percent at 5 p.m. London time. The 1 percent security due in August 2025 fell 0.15, or 1.50 euros per 1,000-euro ($1,104) face amount, to 103.45.
Similar-maturity Spanish bond yields increased six basis points to 2 percent, while those on Italian 10-year securities climbed five basis points to 1.81 percent.
In a week of sparse European economic data, U.S. inflation figures and Federal Open Market Committee minutes set for release Wednesday will be closely watched, according to Lyn Graham-Taylor, a London-based rates strategist at Rabobank International.
If the inflation data is higher than analysts’ forecasts, they might be ignored by markets, Graham-Taylor said. That is because “it pre-dates the China devaluation, while a downside surprise would re-enforce the disinflationary theme,” he said.
Consumer-price growth in the U.S. slowed last month, according to the median estimate of analysts surveyed by Bloomberg before a report Wednesday. Monthly inflation eased to 0.2 percent in July from 0.3 percent in June, according to the forecast.
“We need to probably see more evidence that the commodity-price slump is feeding into lower consumer-price data,” before betting on gains in German bunds, said Marius Daheim, a senior rates strategist at SEB AB in Frankfurt.