German Bonds Drop on Manufacturing Data; Spanish Securities Rise

German 10-year government bonds fell the most in more than a week as surveys of purchasing managers in China and the euro area showed manufacturing increased last month, reducing demand for the safest fixed-income assets.

French 10-year yields climbed to a 10-week high as U.S. President Barack Obama delayed military action against Syria by seeking approval from Congress. The yields on Austrian, Belgian and Dutch securities also increased as data showed manufacturing in the euro region expanded at a faster pace than initially estimated in August, while Spanish bonds advanced. U.S. markets are closed today for the Labor Day holiday.

“The Chinese official PMI manufacturing index surprised on the upside,” said Nick Stamenkovic, an Edinburgh-based strategist at RIA Capital Markets Ltd. “Combined with easing fears of an imminent or early U.S.-led military strike in Syria, the safe-haven flows into bunds started to unwind and bunds have sold off.”

Germany’s 10-year bund yield climbed five basis points, or 0.05 percentage point, to 1.90 percent at 4:22 p.m. London time. That’s the biggest increase since Aug. 22. The 1.5 percent security due in May 2023 fell 0.415, or 4.15 euros per 1,000-euro ($1,319) face amount, to 96.45. The rate on the nation’s two-year note increased three basis points to 0.26 percent.

Chinese Output

An official Chinese Purchasing Managers’ Index jumped more than estimated to a 16-month high of 51, a government report showed yesterday in Beijing. A separate PMI released today by HSBC Holdings Plc and Markit Economics advanced to 50.1 last month from 47.7 in July, the largest gain since 2010. Readings above 50 signal expansion.

An index based on a survey of euro-region purchasing managers in the manufacturing industry increased to 51.4 from 50.3 in July, London-based Markit Economics said. That’s above an estimate of 51.3 published on Aug. 22, and the highest reading since June 2011.

French 10-year yields advanced three basis points to 2.50 percent after touching 2.53 percent, the most since June 24. The rate on similar-maturity Austrian bonds gained four basis points to 2.34 percent. The 10-year Belgian yield rose three basis points to 2.78 percent, and Dutch 10-year yields increased three basis points, to 2.32 percent.

Obama’s administration is trying to persuade U.S. lawmakers over the next week that a military strike against Syria is justified and in the nation’s vital interest. Congress is scheduled to reconvene on Sept. 9.

Spanish Manufacturing

A gauge showed Spanish manufacturing expanded in August for the first time in more than two years, rising to 51.1 from 49.8 a month earlier, according a separate Markit report. Italy’s factory-output index climbed to 51.3, the fastest pace since May 2011, Markit said.

The yield on Spain’s 10-year bond fell 10 basis points to 4.44 percent, while the rate on similar-maturity Italian securities dropped five basis points to 4.36 percent.

Italian Prime Minister Enrico Letta’s strained ruling coalition last week passed amendments to an unpopular property tax, helping to ease tensions with Silvio Berlusconi, leader of the second-biggest party, who had opposed the levy.

“The Italian PMI indicator at 51.3 was stronger than expected, leading to a rally in the domestic bond” market, London-based Goldman Sachs Group Inc. analyst Silvia Ardagna wrote in an e-mailed note. “Supportive macro data and a less tense political environment are benefiting our trade recommendation to be long 10-year Italian BTPs and short 10-year French government bonds.” A short position is a bet an asset’s value will fall.

Bond Movers

Volatility on Finnish bonds was the highest in euro-area markets today followed by those of Germany and Spain, according to measures of 10-year debt, the yield spread between two- and 10-year securities, and credit-default swaps.

Finland’s 10-year bond yield gained four basis points to 2.18 percent.

Greece’s government bonds were little changed after Dutch Finance Minister Jeroen Dijsselbloem said possible new aid to the indebted nation, to be decided in the course of 2014, would be conditional. He commented in a letter to parliament. The rate on Greek 10-year bonds was at 10.30 percent.

German bonds lost 2.2 percent this year through Aug. 30, according to Bloomberg World Bond Indexes. Italian securities returned 3.6 percent, while Spain’s earned 7.4 percent.

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