German Note Yields Climb to 10-Month High on Loan Repayment Data

German two-year notes fell for a fourth week, pushing yields to a 10-month high, amid speculation the debt crisis is abating after the European Central Bank said banks plan to repay more loans than analysts estimated.

Portugal’s 10-year government bond yield dropped to the lowest level in more than two years after the nation sold notes via banks, moving a step closer to regaining access to long-term debt markets. The country’s two-year note rate slid below 3 percent for the first time since October 2010. The yield on Italian 10-year bonds fell to the least since November 2010 as investors sought higher-yielding assets.

The loan repayment is “above market consensus and it may put some pressure on the front end of core markets” such as Germany, said Mohit Kumar, the head of European interest-rate strategy at Deutsche Bank AG in London, referring to shorter-dated maturities. “Banks can afford and are comfortable to repay because the global backdrop is improving.”

German two-year note yields climbed eight basis points, or 0.08 percentage point, in the week to 0.26 percent at 5 p.m. in London yesterday. The rate rose to 0.28 percent yesterday, the most since March 22. The zero percent security due in December 2014 fell 0.135, or 1.35 euros per 1,000-euro ($1,346) face amount, to 99.52.

Benchmark 10-year bund yields increased eight basis points to 1.64 percent, after climbing to 1.65 percent, the highest level since Oct. 18.

Loan Repayment

The two-year notes of France, Austria, the Netherlands, Finland and Belgian all posted weekly declines after the ECB said 278 financial institutions will pay back 137.2 billion euros of three-year loans on Jan. 30. That compares with the median forecast of 84 billion euros in a Bloomberg News survey of economists. The ECB’s first three-year loan totalled 489 billion euros and banks can continue to make early repayments in coming weeks.

Portugal’s 10-year yield fell to 5.80 percent on Jan. 23, the lowest since Oct. 27, 2010. The rate rose one basis point in the week to 6.13 percent.

Fitch Ratings said Portugal’s sale of five-year notes through banks on Jan. 23 was “positive for its credit profile.” The nation sold 2.5 billion euros of the securities, the first offering of that maturity in almost two years. The sale attracted bids for 12 billion euros of debt, Secretary of State for Treasury Maria Luis Albuquerque said at a Jan. 23 press conference.

Italy’s 10-year yield fell to as low as to 4.07 percent, the least since Nov. 10, 2010. The nation is scheduled to auction as much as 6.75 billion euros of notes due 2014 and inflation-linked securities due 2018 on Jan. 28. Finland is set to sell 1 billion euros of 2028 securities a day later and Germany will offer 2 billion euros of 30-year bunds on Jan. 30.

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