Germany’s Bunds Rise Before Bernanke as Portuguese Notes Advance
Germany’s government bonds rose for the first time in three days as investors weighed what Federal Reserve Chairman Ben S. Bernanke will say about the central bank’s asset-purchase program at a press conference today.
The benchmark 10-year bund yield approached the lowest level in a week as investors sought fixed-income securities. Bernanke is due to speak after the U.S. central bank ends a two-day policy meeting in Washington. Portugal’s notes rose for a fourth day as the nation sold 1.5 billion euros ($2.01 billion) of bills. Coutts & Co. said it bought Irish government bonds last week after volatility increased.
“The market is waiting to see what Bernanke will say about when they will start tapering,” said Allan von Mehren, chief analyst at Danske Bank A/S (DANSKE) in Copenhagen. “He will be very careful because they don’t want to see bond yields go much higher than this but they can live with them at these levels. We have seen some volatility recently and that will continue.”
Germany’s 10-year yield fell one basis point, or 0.01 percentage point, to 1.56 percent at 4:27 p.m. London time after dropping to 1.51 percent on June 17, the lowest since June 7. The 1.5 percent bund due in May 2023 rose 0.11, or 1.10 euros per 1,000-euro face amount, to 99.475.
The 10-year yield will climb to 1.60 percent in six months, Danske Bank’s von Mehren said.
The Fed will wait to reduce bond buying until its Oct. 29-30 meeting, when it will cut monthly purchases to $65 billion from $85 billion, according to the median estimate in a June 4-5 Bloomberg survey of 59 economists. The Federal Open Market Committee plans to release a statement at 2 p.m. in Washington, while Bernanke’s press conference is due at 2:30 p.m.
“Bernanke has to address asset purchases and every nuance in his replies will be seized upon by markets,” Jim Reid, head of fundamental strategy at Deutsche Bank AG in London, wrote in a note to clients. “Our gut feeling is that the Fed will err on the side of caution with regards to tapering talk and that no additional signal will be given by the chairman to accelerate the market’s fears.”
Italy’s 10-year yield fell two basis points to 4.26 percent and the rate on similar-maturity Spanish bonds fell three basis points to 4.53 percent.
Spain plans to sell as much as 4 billion euros of debt maturing in 2018, 2021, and 2023 tomorrow. The nation last sold the 4.4 percent bonds maturing in October 2023 on June 6 at an average yield of 4.517 percent, the lowest level for a 10-year sale since 2010.
Germany allotted 4 billion euros of 10-year bunds today at an average yield of 1.55 percent, the central bank said. The nation received bids for 6.14 billion euros, compared with a 5 billion-euro target. The country last sold the securities on May 22 at average yield of 1.41 percent.
Portugal sold 1.05 billion euros of 18-month bills and 450 million euros of six-month debt.
The securities due in December 2014 were allotted at an average yield of 1.603 percent, the debt management agency said. That compares with an average yield of 1.506 percent at a previous auction of 18-month bills on March 20. The six-month debt was sold at an average yield of 1.041 percent.
Portugal’s two-year yield fell 12 basis points to 3.26 percent after dropping to 3.22 percent, the lowest level since June 11.
Increased market volatility created a buying opportunity in Irish bonds for Coutts, which oversees about $49 billion, Niamh Wylie, a money manager at the company in London told reporters today in London.
Ireland’s 10-year yield declined three basis points to 3.88 percent after climbing to 4.26 percent on June 11, the highest level since March.
Volatility on Austrian bonds was the highest among euro-region markets today followed by those of France and Finland, according to measures of 10-year debt, the yield spread between two- and 10-year securities, and credit-default swaps. Swiss bonds were the most volatile among developed markets, the indexes showed.
German bonds handed investors a loss of 1 percent this year through yesterday, according to Bloomberg World Bond Indexes. Spanish securities returned 5.9 percent and Italy’s earned 3 percent, the indexes show.