German Bonds Fall as Trading Signals U.K. Will Remain in EU

Fixed Income Is in a Sweet Spot, Says Gartside
  • Benchmark 10-year bund yields approach two-week high
  • Italy-Germany yield spread falls to lowest since June 13

German government bonds fell as traders followed signals from betting odds that Britain will vote to remain in the European Union in Thursday’s referendum.

Italy’s 10-year yield premium over Germany touched the lowest level in more than a week as German bund yields approached a two-week high. While bookmaker figures processed by the Oddschecker website put the chance of Brexit at about 25 percent, the polls were more divided on whether the U.K. would vote to stay or leave. European Central Bank President Mario Draghi said officials were ready to act if the vote caused market turmoil and threatened price stability.

It has “been a bit of a roller coaster in the past couple of weeks with a bit of a panic last week on fear of a Brexit and now most again expect the U.K. to remain,” said Allan von Mehren, chief analyst at Danske Bank A/S in Copenhagen. “Everyone is awaiting tomorrow’s referendum, so there is not much going on and liquidity is likely to be quite thin today and tomorrow.”

Benchmark German 10-year bund yields rose one basis point, or 0.01 percentage point, to 0.06 percent as of 4:16 p.m. London time, after rising to 0.075 percent Tuesday, the highest since June 7. The 0.5 percent security due in February 2026 fell 0.14, or 1.40 euros per 1,000-euro ($1,129) face amount, to 104.19.

Italy’s 10-year bond yield dropped one basis point to 1.44 percent. The yield spread versus similar-maturity German debt narrowed to 1.36 percentage points, the lowest since June 10. The yield on similar-maturity Spanish debt was little changed at 1.50 percent.

In the final bond auction before the U.K. vote, Germany sold 1 billion euros of securities due in August 2046 at a record-low auction yield of 0.65 percent.

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