German Yield Falls From 3-Week High as Selloff Seen Excessive

  • Search for safety resumes as China fails to halt market rout
  • Semi-core bond markets advance as Italy trails behind Germany

German government bonds advanced for the first time in three days as investors judged Tuesday’s selloff was too much given the prospect for more stock-market volatility that may boost demand for haven assets.

The benchmark 10-year bund yield dropped from its highest level in three weeks. French and Austrian securities also advanced amid renewed demand for the region’s safest sovereign debt. The extra yield, or spread, that investors get for holding Italian 10-year bonds instead of German bunds widened, after narrowing on Tuesday by the most in more than a week. The Stoxx Europe 600 Index of shares fell.

“The bottom line is that it’s been a highly volatile week and it’s one that could continue for days to come,” said Orlando Green, a fixed-income analyst at Credit Agricole SA’s corporate and investment-banking unit in London. “The selloff was a bit overdone yesterday. The move seemed a bit stretched.”

Germany’s 10-year bund yields fell three basis points, or 0.03 percentage point, to 0.70 percent as of 4:13 p.m. London time. The yield jumped 14 basis points on Tuesday and touched 0.76 percent, the highest since Aug. 5. The 1 percent security due August 2025 gained 0.32, or 3.20 euros per 1,000-euro ($1,141) face amount, to 102.91.

Bunds stayed higher as Federal Reserve Bank of New York President William C. Dudley said the case for raising U.S. interest rates in September is less compelling because of international financial and market developments.

Yields on French 10-year bonds decreased five basis points to 1.08 percent, after a jump of 14 basis points on Tuesday, and those on similar-maturity Austrian debt declined four basis points to 1.02 percent, the first drop in four days.

Italian bond 10-year yields fell one basis point to 1.97 percent, widening the spread over similar-maturity German bunds by two basis points to 128 basis points. The gap narrowed six basis points a day earlier. While the spread touched 138 basis points on Aug. 24, the most since July 10, it’s tightened from 575 basis points reached in November 2011.

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