German 10-Year Yield Tops 2% as Bonds Selloff Undermines Draghi
European government bonds dropped, sending German 10-year yields to the highest in 17 months, as the European Central Bank kept the benchmark interest rate at a record-low 0.5 percent amid signs global growth is stabilizing.
Austrian, Finnish, and Dutch 10-year yields also reached the highest in more than a year as France’s borrowing costs rose at an auction today to the most since President Francois Hollande was elected. A U.S. report tomorrow that will show employers increased the pace of hiring in August, according to a survey of economists. German two-year note yields climbed the most in two weeks, even after ECB President Mario Draghi said interest rates will remain low.
“It is the turning tide of sentiment toward ultra-low interest rates,” said Andrew Wilkinson, the chief economic strategist at Miller Tabak & Co. in New York. “Global risks to the economy, at least perceived, have clearly receded. For now, the weight of investor positioning is working against Draghi as he attempts to talk yields lower.”
Germany’s 10-year bund yield rose 10 basis points, or 0.1 percentage point, to 2.04 percent at 4:38 p.m. London time, after reaching 2.05 percent, the highest since March 21, 2012. The 1.5 percent security due in May 2023 fell 0.84, or 8.40 euros per 1,000-euro ($1,312) face amount, to 95.30.
The rate on the nation’s two-year note increased six basis points to 0.33 percent and touched 0.34 percent, also the highest since March 2012. The yield has climbed 18 basis points since July 31, the day before the ECB’s last policy meeting when Draghi said recent economic indicators signaled the euro region is through the worst of its slump.
The ECB kept its benchmark interest rate unchanged today, matching the median estimate of 56 economists surveyed by Bloomberg News.
“The Governing Council confirms that it expects the key ECB interest rates to remain at present or lower levels for an extended period of time,” Draghi said at a press conference in Frankfurt. “Recent developments in global money and financial-market conditions and related uncertainties may have the potential to negatively affect economic conditions.”
The yield difference, or spread, between German 10-year bonds and two-year notes increased four basis points to 171 basis points, the widest since March 2012.
“Draghi did try and emphasize rates will be kept low,” said Mark Capleton, a fixed-income strategist at Bank of America Merrill Lynch in London. “The selloff that we’re seeing at the front end is mostly about the disappointment that he offered nothing more concrete.”
Euro-region government bonds dropped along with Treasuries and U.K. gilts before a Labor Department report tomorrow that will show U.S. companies added 180,000 workers last month, according to the median estimate in a Bloomberg survey. The unemployment rate held at 7.4 percent, the lowest level since December 2008, a separate survey shows.
France’s 10-year yield increased as much as 11 basis points to 2.64 percent, the highest since July 2, 2012. The rate on similar-maturity Austrian bonds gained as much as 11 basis points to 2.47 percent and Dutch (GNTH10YR) yields reached 2.47 percent.
The French Treasury sold 4.24 billion euros of 2023 debt at an average yield of 2.57 percent, the highest at a 10-year auction since May 2012. It also sold securities maturing in 2021 and 2045.
Spain allotted 2.4 billion euros of 10-year bonds at an average yield of 4.503 percent, the lowest since an auction in September 2010. The Madrid-based Treasury last sold its benchmark 10-year securities on July 18 at 4.723 percent. The Treasury also sold 1.6 billion euros of five-year securities to yield 3.477 percent.
Spain’s 10-year yield rose 10 basis points to 4.61 percent, while the rate on similar-maturity Italian bonds increased 12 basis points to 4.54 percent.
Volatility on Swedish bonds was the highest in developed markets today followed by those of the Netherlands and Denmark, according to measures of 10-year debt, the yield spread between two- and 10-year securities, and credit-default swaps.
Sweden (GSGB10YR)’s 10-year bond yield reached 2.75 percent, the highest since July 2011, and climbed to as much as 140 basis points more than the rate on the two-year note, the widest spread since February 2011.
German bonds lost 2.6 percent this year through yesterday, according to Bloomberg World Bond Indexes. Spanish securities returned 7.7 percent, while Italy’s earned 3.5 percent.
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