- Nonfarm payrolls fall short of median forecast from analysts
- Spanish bond yields drop the most this week since Jan. 2014
Euro-area government bonds advanced, pushing Germany’s benchmark 10-year bund yield to the lowest level since June, after U.S. employment growth fell short of economists’ estimates.
Investor demand for the relative safety of fixed-income assets increased after Labor Department data showed U.S. employers added 142,000 jobs in September. Economists in a Bloomberg survey forecast an increase of 201,000 last month. The hiring level helped push the prospect of the U.S. raising interest rates out until March 2016, futures show. Before the report, some Federal Reserve policy makers had said they saw rates rising before 2016.
This came as the European Central Bank is engaged in unprecedented monetary stimulus, including a quantitative-easing program. The region’s bonds have been rallying as traders increase expectations the policy makers will decide to boost stimulus further to tackle the worsening outlook for inflation and growth. German six-year note yields dropped below zero for the first time since April.
“Bunds are largely just captive to Treasuries, and a sour global mood that falls out of the payrolls report,” said Richard Kelly, head of global strategy at Toronto Dominion Bank in London. “The ECB is ultimately going to have to augment QE by year-end with a 50/50 chance of a rate cut” and may drive bund yields back below 0.5 percentage point.
Germany’s 10-year bund yields fell three basis points, or 0.03 percentage point, to 0.51 percent as of the 5 p.m. London close, the lowest level since June 1. The 1 percent security due in August 2025 rose 0.255, or 2.55 euros per 1,000-euro ($1,127) face amount, to 104.70. U.S. 10-year note yields fell nine basis points to 1.95 percent, and touched 1.90 percent, the lowest since Aug. 24.
Portugal’s bonds gained for an eighth consecutive day before national elections on Oct. 4. The ruling coalition leads in the latest polls. Portugal exited its international bailout program last year. The nation’s 10-year bond yields have dropped from 18 percent in the height of the European sovereign-debt crisis to a record-low 1.509 percent in March, reached the same week as the European Central Bank began its 1.1 trillion-euro bond-buying program.
Portuguese 10-year bond yields dropped five points on Friday to 2.30 percent, declining about 30 basis points since Sept. 22.
Spanish 10-year bond yields had their biggest weekly decline since January 2014. That’s narrowed the spread over German bunds to the least since Aug. 11. Standard & Poor’s raised Spain’s credit rating to BBB+ on Friday, three levels above junk status, citing easier financial conditions for the economy.
Spanish bonds have gained since Catalonia’s election on Sept. 27 was deemed to reduce the likelihood of independence for the region. Prime Minister Mariano Rajoy Friday set national elections for Dec. 20.
The yield on Spanish 10-year bonds fell four basis points to 1.78 percent Friday, extending this week’s decline to 26 basis points.
The weaker economic picture has contributed to this week’s rally in bonds and data will continue to add to the evidence that growth is suffering, according to Patrick Jacq, a senior fixed-income strategist at BNP Paribas in Paris.
“In addition, there is growing expectation the ECB may deliver a more accommodative decision by the end of the year,” Jacq said. “Whether it is in magnitude or duration, an extension of QE is being more and more priced in.”