German Bonds Rise With European Peers on Stimulus Bets, Russia

Germany’s government bonds advanced with their peers in the euro area as the prospect of additional stimulus from the European Central Bank boosted demand for fixed-income assets.

Benchmark 10-year bund yields fell toward the lowest level since August as Russia was reported to be preparing military exercises near Ukraine. French, Dutch and Greek securities also rallied. The advance in bunds was tempered after a sale of 30-year bonds failed to meet the maximum target. ECB officials meet next week amid speculation they will consider easing measures such as ending the removal of excess liquidity arising from bond purchases made under the Securities Markets Program.

“If the ECB is going to give some dovish comments or maybe just give some signal that they might stop the sterilization of the SMP, it might benefit more the 10-year segment,” said Annalisa Piazza, a senior fixed-income strategist at Newedge Group in London. “Within Germany, the 10-year bond is better than the 30 year at the moment.”

Germany’s 10-year yield fell three basis points, or 0.03 percentage point, to 1.62 percent at 4:31 p.m. London time after dropping to 1.60 percent on Feb. 5, the lowest level since Aug. 1. The 1.75 percent bund due in February 2024 rose 0.28, or 2.80 euros per 1,000-euro ($1,367) face amount, to 101.23.

French 10-year yields declined three basis points to 2.20 percent, and similar-maturity Dutch rates dropped three basis points to 1.84 percent.

Bunds Supported

Europe’s government bonds have been supported as ECB officials, who meet on March 6, debate whether they should ease monetary policy to avert the threat of deflation. Consumer prices in the region are rising at less than half the central bank’s 2 percent annual target.

Options include cutting the key interest rate from a record-low 0.25 percent, ending the mopping-up of excess liquidity from the ECB’s since-terminated SMP or following the Federal Reserve and Bank of England in printing money.

Interfax news service reported Russian President Vladimir Putin ordered military exercises amid tensions in Ukraine. Putin issued orders to conduct an immediate check of the combat-readiness of central and western military districts as well as a test of air defense, airborne troops and aviation, Interfax said, citing Defense Minister Sergei Shoigu.

German bonds, perceived to be among Europe’s safest government debt securities, tend to gain during times of financial or political turmoil.

‘Searching Around’

Some investors “are pointing to that Russian news as causing a bit of a bid for bunds,” said Lyn Graham-Taylor, a fixed-income strategist at Rabobank International in London. “The market is kind of searching around for direction.”

The German government sold securities due in August 2046 at an average yield of 2.53 percent, down from 2.64 percent at a previous auction of 30-year debt in October. The auction attracted bids for 2.794 billion euros, less than the maximum 3 billion euros for sale.

The yield on Germany’s 2.5 percent bond due in July 2044 fell five basis points to 2.47 percent.

Greek 10-year bonds rose for a third day even as a meeting between central bank Governor George Provopoulos and officials from the European Commission, International Monetary Fund and ECB ended without an agreement on how much extra capital the country’s banks will need. Talks will resume next week, a central bank official told Bloomberg News.

Greece’s 10-year yield fell 16 basis points to 7.19 percent after declining to 7.18 percent, the lowest since May 2010.

Portuguese two-year notes advanced for a fourth day. The yield dropped 14 basis points to 1.91 percent after falling to 1.88 percent, the least since Jan. 8.

Before it's here, it's on the Bloomberg Terminal.