German Bunds Rise as IMF Cuts Growth Forecast; Spain Bonds Drop
German government bonds advanced, with 10-year yields falling for a second day, as the International Monetary Fund’s decision to reduce its global growth forecast boosted demand for safer assets.
Bunds also rose as European Central Bank Executive Board member Joerg Asmussen said on Reuters Insider TV the ECB’s pledge to keep rates low or even lower goes beyond 12 months. Spain’s 10-year securities declined. Portuguese bonds gained after the European Union agreed to release additional aid to Greece, easing concern that the debt crisis will worsen. Greek 10-year yields fell earlier to the lowest level since June 20.
“The IMF forecasts still show global growth is still pretty fragile and Europe in particular is struggling,” said Nick Stamenkovic, a fixed-income strategist at RIA Capital Markets Ltd. in Edinburgh. “That’s clearly providing some support for bunds. The ECB looks to be providing more detail on its forward guidance, though it doesn’t look like they are going to attach thresholds to that.”
The benchmark 10-year bund yield fell four basis points, or 0.04 percentage point, to 1.65 percent at 5 p.m. London time. The rate dropped to 1.60 percent on July 4, the lowest since June 20. The 1.5 percent security due in May 2023 climbed 0.395, or 3.95 euros per 1,000-euro ($1,277) face amount, to 98.615.
Global growth will be 3.1 percent this year, unchanged from the 2012 rate, and less than the 3.3 percent forecast in April, the Washington-based IMF said, citing a weaker U.S. expansion, a leveling off in China’s economy and Europe’s recession.
“Downside risks to global growth prospects still dominate,” the IMF said in an update to its World Economic Outlook. It cited “the possibility of a longer growth slowdown in emerging market economies, especially given risks of lower potential growth, slowing credit, and possibly tighter financial conditions.”
Asmussen said the ECB also hasn’t ruled out another round of Longer Term Refinancing Operations to inject cash into the banking system.
European finance ministers said yesterday Greece will get 2.5 billion euros this month and 500 million euros in October if the government delivers on economic reforms and cuts to spending. Greece can also count on recouping 2 billion euros in central bank profits on Greek bonds and on 1.8 billion euros from the IMF.
“There was rather good news from Greece, now we have that uncertainty in terms of financing most likely off the table,” said Christian Lenk, a fixed-income analyst at DZ Bank AG in Frankfurt. “Investors are simply looking again at where can we get some yield pickup.”
The Portuguese 10-year bond yield slid 20 basis points to 6.73 percent. Rates on similar-maturity Irish bonds fell for a fourth day, dropping one basis point to 3.92 percent.
Greece’s 10-year rate increased six basis points to 10.99 percent after falling as much as 62 basis points.
Spain’s bonds fell after the country sold 3.5 billion euros of 2028 bonds via banks. The 15-year securities were sold at a price of 99.57, equivalent to a yield of 5.194 percent, according to a person familiar with the deal who asked not to be named. The rate on Spanish 10-year bonds was six basis points higher at 4.74 percent.
The Netherlands auctioned 2.3 billion euros of bonds due in July 2023 at an average yield of 2.061 percent. It last sold 10-year debt on May 28 at 1.783 percent, compared with a record-low auction rate of 1.579 percent set on Nov. 13.
“Positive cash flows and the relative cheapness of the Dutch paper both versus Germany and France are likely to have been the key supportive factors,” Annalisa Piazza, a fixed-income analyst at Newedge Group in London, wrote in an e-mailed note to clients.
The Dutch 10-year bond yield dropped four basis points to 2.04 percent.
Volatility on Finnish bonds was the highest in euro-area markets today followed by those of Germany and Portugal, 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 1.4 percent this year through yesterday, according to Bloomberg World Bond Indexes. Greek securities returned 16 percent and Portuguese bonds gained 0.1 percent, the indexes show.
To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at firstname.lastname@example.org