German Bonds Snap Two-Day Decline Before Euro-Area PMI Reports
German government bonds snapped a two-day decline before data tomorrow that economists said will show output in the euro-area’s manufacturing and services industries contracted this month.
Ten-year bunds pared gains as Treasuries fell after Federal Reserve Chairman Ben S. Bernanke said the U.S. central bank may reduce the pace of its asset purchases in the next few meetings. A composite index based on a survey of purchasing managers in the euro-area’s manufacturing and services industries increased to 47.2 from 46.9 in April, according to the median of 27 estimates in a Bloomberg News survey. A reading below 50 indicates contraction.
“Tomorrow’s PMI data will be very important for sentiment near term,” said Nick Stamenkovic, a strategist at RIA Capital Markets Ltd. in Edinburgh. “The economic backdrop is more favorable for bunds than Treasuries. This divergence will persist if flash EU PMI surveys disappoint.”
The yield on Germany’s 1.5 percent bund due in February 2023 was little changed at 1.39 percent at the 5 p.m. close in London. The price was at 101. The rate earlier dropped as much as six basis points to 1.33 percent.
The Treasury 10-year yield climbed as much as nine basis points to 2.01 percent, the highest since March 15.
“If we see continued improvement, and we have confidence that that is going to be sustained, in the next few meetings we could take a step down in our pace of purchases,” Bernanke said today in testimony prepared for a hearing at the Joint Economic Committee of Congress in Washington.
Bunds and Treasuries advanced earlier as Bernanke said the U.S. economy remains hampered by high unemployment and government spending cuts, and tightening policy too soon would endanger the recovery.
“A premature tightening of monetary policy could lead interest rates to rise temporarily but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further,” Bernanke said.
Germany allotted 4.1 billion euros of a new benchmark security due in May 2023 at an average yield of 1.41 percent at an auction today, compared with a record-low 1.28 percent at a sale of 10-year debt on April 17.
Spanish 10-year bonds rose for the sixth day, the longest winning streak in six weeks. The yield was one basis point lower at 4.18 percent.
Spain is considering a 15-year bond sale through banks this year as well as offers of index-linked and dollar-denominated debt as it seeks to tap investor demand, Deputy Treasury Head Ignacio Fernandez-Palomero Morales said. The country sold 7 billion euros of 10-year bonds through banks on May 14, after attracting bids for more than 21 billion euros.
“We could still access the markets with a potential syndicated issue in the range of 15 years,” Fernandez-Palomero said at a news conference in Madrid today. If market conditions are suitable, Spain may carry out a syndicated sale before the end of the year, he said.
Volatility on Belgian bonds was the highest in euro-area markets today followed by those of the Germany and France, according to measures of 10-year debt, the yield spread between two- and 10-year securities, and credit-default swaps.
German bonds handed investors a loss of 1 percent this month through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish securities dropped 0.2 percent.