European government bonds swung between gains and losses as investors waited for the release later Wednesday of minutes from the Federal Reserve’s most recent meeting for clues to the timing of a interest-rate increase.
Higher-yielding euro-area sovereign securities rose earlier as the German parliament voted in favor of an aid package of as much as 86 billion euros ($95 billion) for Greece, stemming fears of the nation’s exit from the euro. Minutes from the Federal Open Market Committee’s July gathering are set for release at 2 p.m. New York time.
“The minutes are something the markets will be focused on,” said Orlando Green, a fixed-income analyst at Credit Agricole SA’s corporate and investment-banking unit in London. “It’s crucial that we have a more hawkish tone,” he said, adding that while he forecasts an increase in rates in September, the decision is “really on a knife’s edge.”
German 10-year bund yields were little changed at 0.64 percent as of 4:15 p.m. London time. The price of the 1 percent security due in August 2025 was 103.51 percent of face value. The yield earlier dropped as much as two basis points and climbed by the same amount.
Italy’s 10-year bond yield increased two basis points to 1.83 percent, having earlier fallen as much as four basis points. Similar-maturity Spanish bond yields were little changed at 2 percent, from as low as 1.97 percent earlier.
Futures show traders see a 48 percent probability the Fed will raise its benchmark rate at its Sept. 16-17 meeting, based on the assumption that the effective fed funds rate will average 0.375 percent after the first increase. The Fed has kept its key rate in a range of zero to 0.25 percent since December 2008.
In an environment of low liquidity in the European summer holiday season, euro-region bonds have whipsawed between gains and losses within tight ranges in recent days.
The difference between the intraday high and low yield in German 10-year bunds, Europe’s benchmark sovereign securities, fell to 3.7 basis points, the least in a month.
While the turmoil in China and the recent slide in commodity prices fueled deflation fears and helped support European bonds Monday, prospects of the Fed tightening monetary policy capped gains Wednesday.
Spain is set to auction as much as 3.5 billion euros of bonds Thursday, including the current 10-year 2.15 percent bond due October 2025. The nation also plans to sell notes maturing in April 2018 and January 2024.
“Traders keep telling me that liquidity is so much lower than before the holidays, even then it was quite low, so flows can actually have quite an impact,” said Martin van Vliet, a senior interest-rate strategist at ING Groep NV in Amsterdam. “They continue to tell me that I should be very careful to draw strong conclusions from two-basis-point moves.”