German Bunds Drop as Crimea Tensions Ease; Spanish Bonds AdvanceLucy Meakin and Eshe Nelson
Germany’s bonds declined, with 10-year yields rising from near the lowest in seven months, as tensions over Crimea eased after President Vladimir Putin said there was no immediate need to send Russian troops to Ukraine.
Dutch and French securities also dropped as Russia ordered its troops back to their bases at the end of military exercises, damping demand for the safest fixed-income assets. Austria’s bonds fell as the nation sold 10-year debt. Spanish bonds rallied, pushing 10-year yields to the lowest since 2006, as investor appetite for higher-yielding assets revived. Greece auctioned bills at the lowest rate since 2010
“It’s hard to guess how the situation will develop in the Russia and Ukraine areas but for now, the markets are seeing some kind of relief,” Christian Reicherter, an analyst at DZ Bank AG in Frankfurt said. “Putin just ended some military exercises and that’s driving the bunds lower.”
Germany’s 10-year yield rose five basis points, or 0.05 percentage point, to 1.60 percent at 4:33 p.m. London time after dropping to 1.55 percent on Feb. 27, the lowest since July 24. The 1.75 percent bund due in February 2024 fell 0.435, or 3.45 euros per 1,000-euro ($1,374) face amount, to 101.385.
Putin accused Ukrainian protesters in Kiev of an illegal coup to topple leader Viktor Yanukovych, in his first public remarks since the fall of the government sparked a Russian intervention in its southern Crimea region.
Russia’s Defense Ministry ended a drill involving about 150,000 troops across several regions near the border with Ukraine. The Kremlin still has 16,000 troops deployed in the southern region, condemned by the U.S. as a breach of Ukraine’s sovereignty.
Dutch 10-year yields rose four basis points to 1.83 percent, France’s climbed three basis points to 2.17 percent and Austria’s increased four basis points to 1.89 percent.
Austria sold 500 million euros of securities due in October 2023 at an average yield of 1.851 percent, compared with 2.174 percent at a previous auction on Jan. 7. The Treasury also allotted 600 million euros in bonds due in October 2018.
Spain’s 10-year yields dropped six basis points to 3.44 percent after declining to 3.43 percent, the lowest since February 2006. Similar-maturity Italian rates fell four basis points to 3.42 percent.
“The traditional risky elements -- spread products, Italian, Spanish bonds, other peripheral markets -- haven’t reacted very negatively,” said Peter Schaffrik, head of European rates strategy at Royal Bank of Canada in London. “The risks for these typical risk proxies in the euro-area fixed-income market is very low and you can certainly hold onto these things.”
Greece sold 1.14 billion euros of six-month bills at 3.60 percent, the lowest since January 2010. The rate on the nation’s 10-year securities fell 11 basis points to 6.93 percent.
Volatility on Germany bonds was the highest in euro-area markets today, followed by those of Finland and France, according to measures of 10-year debt, the yield spread between two- and 10-year securities and credit-default swaps.
Germany is scheduled to sell 4 billion euros of five-year notes tomorrow. The Finance Agency last sold securities due in February 2019 on Feb. 5 at an average yield of 0.63 percent, compared with 0.9 percent at a previous auction on Jan. 15.
The European Central Bank next meets to review monetary policy on Thursday. Policy makers led by President Mario Draghi will keep their benchmark interest rate at a record-low 0.25 percent, according to 40 of the 54 economists surveyed by Bloomberg News. Six forecast a reduction to 0.15 percent and eight predict a cut to 0.1 percent, the survey showed.
German bonds returned 2.6 percent this year through yesterday, according to Bloomberg World Bond Indexes. Austria’s gained 2.7 percent and Italy’s rose 4 percent.