French, Austrian Bond Yields Fall to Record Lows on ECB OptimismEmma Charlton and Lukanyo Mnyanda
Europe’s government bonds rose this week, with French, Austrian and Belgian yields falling to records, as the European Central Bank said it would keep policy accommodative and the Bank of Japan boosted asset purchases.
French 10-year yields dropped the most since July this week after ECB president Mario Draghi said policy makers “stand ready to act” to bolster the region’s flagging economy. Italian and Spanish bonds led gains in so-called peripheral securities as the BOJ announced 7.5 trillion yen ($77.4 billion) of monthly asset purchases. German bunds advanced as a U.S. report showed employers hired fewer workers than economists predicted in March, underpinning demand for the region’s safer assets.
“The ECB reinforced the impression that we are looking at ultra-low interest rates for a while,” said Orlando Green, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “Investors are looking to get as much yield as they possibly can without compromising too much in terms of risk. The BOJ made their move too, which is why you are seeing a number of rates fall.”
France’s 10-year yield dropped 27 basis points, or 0.27 percentage point, this week to 1.75 percent after falling to 1.716 percent yesterday, the lowest level since Bloomberg began compiling data on the securities in 1990. The 2.25 percent bond due in October 2022 rose 2.385, or 23.85 euros per 1,000-euro ($1,302) face amount, to 104.315.
The ECB left its key refinancing rate at a record-low 0.75 percent at its monthly meeting on April 4, with Draghi saying at a press conference after the announcement that monetary policy “will remain accommodative for as long as needed.”
Austria’s 10-year yield declined 21 basis points this week to 1.48 percent after dropping to an all-time low 1.474 percent. Similar-maturity Belgian yields fell 27 basis points to 1.97 percent after touching 1.925 percent.
The BOJ said on April 4 it would double the monetary base by the end of 2014 by buying government bonds in the country’s biggest-ever round of asset purchases. The announcement pushed down bond yields in the nation to records, increasing the attractiveness of European bonds to Japanese investors.
Italy’s 10-year yield declined 39 basis points this week to 4.38 percent, while similar-maturity Spanish rates dropped 31 basis points to 4.75 percent.
Germany’s 10-year bund yield fell to the lowest since July as the U.S. Labor Department said yesterday that payrolls increased by 88,000 workers in March, the last in nine months.
The yield on the benchmark 10-year bund dropped eight basis points this week to 1.21 percent after falling to 1.20 percent, the lowest level since July 24.
French government bonds returned 8.6 percent in the year through April 4, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds gained 4.9 percent and Spanish bonds earned 11 percent.