Europe's Bonds Start 2016 on a Roll as Bulls See Slow Inflation

  • German 10-year bunds advance most in a month this week
  • Below-forecast U.S. wage growth outweighs strong payroll data

Euro-area government bonds started the year on a strong footing.

German 10-year bunds, the region’s benchmark, gained the most in a month this week as lower-than-forecast inflation, falling oil prices, turmoil in Chinese markets and rising tensions in the Middle East boosted fixed-income assets.

Securities from Spain and Italy to Germany extended their advance Friday as data showed U.S. wage growth rose less than forecast in December, outweighing the impact of a gain in job numbers. German yields held above a one-month low reached earlier in the week after 12 billion euros ($13.1 billion) of euro-zone supply entered the market Thursday.

“Markets have been mainly driven by two factors so far this week -- the risk-off mode and oil prices,” said Patrick Jacq, a senior fixed-income strategist at BNP Paribas SA in Paris. The bank is bullish on the region’s bonds for the whole year as net supply, adjusted for the European Central Bank’s purchases, is strongly negative. “It’s a good start for European government bonds, at least for cores,” he said, referring to bonds of nations like Germany and France.

Germany’s 10-year bund yield fell three basis points, or 0.03 percentage point, to 0.51 percent as of the European close, bringing its slide this week to 12 basis points. The yield dropped to 0.48 percent Thursday, the lowest since Dec. 3. The 1 percent security due in August 2025 rose 0.235, or 2.35 euros per 1,000-euro face amount, to 104.535 percent.

Italy’s 10-year yield dropped three basis points to 1.53 percent, while Spain’s declined three basis points to 1.71 percent.

The 292,000 gain in U.S. payrolls exceeded the highest forecast in a Bloomberg survey and followed a 252,000 increase in November that was stronger than previously estimated, the Labor Department reported.

Yet average hourly earnings climbed 2.5 percent over the 12 months ended December, less than the predicted 2.7 percent increase.

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