German Bonds’ Turbulent Week Ends With Rally as Rout Seen Over

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Germany’s government bonds rose for the first time in three days, ending a turbulent week in which European Central Bank officials reiterated their commitment to a debt-purchase program amid signs of an uneven economic recovery.

After a buyers’ revolt that earlier this month pushed yields to the highest since December, benchmark 10-year bunds halted four weeks of declines. Reports on Friday confirmed that Germany’s gross domestic product expanded at a slower pace in the first quarter and business confidence declined this month. Greece’s 10-year bonds posted a weekly drop as talks in Riga, Latvia, aimed at unlocking the nation’s bailout funds failed to produce a breakthrough.

“The market is quickly rebuilding momentum for another move lower in yields,” said Jan von Gerich, chief strategist at Nordea Bank AB in Helsinki. “It’s clear that the selloff pressure has abated and going forward the ECB will be offering support.”

Germany’s 10-year bund yield fell four basis points, or 0.04 percentage point, to 0.60 percent at 4:20 p.m. London time, having increased five basis points in the previous two days. The 0.5 percent bond due in February 2025 rose 0.345, or 3.45 euros per 1,000-euro ($1,103) face amount, to 99.03. The yield moved in a range of 13 basis points this week, rising to as high as 0.68 percent on Thursday.

The yield on the euro area’s benchmark sovereign securities has surged from a record-low 0.049 percent set as recently as April 17, rising to as much as 0.78 percent on May 7, the highest since Dec. 8.

Coeure Comments

ECB Executive Board member Benoit Coeure said this week the central bank would increase bond purchases in May and June, in anticipation of a summer lull.

An account of the ECB’s April 14-15 meeting published on Thursday showed policy makers agreed that “emphasis needed to be placed on a steady course of monetary policy with a focus on the firm implementation of the Governing Council’s recent monetary-policy decisions,” damping speculation that an economic recovery would lead to their quantitative-easing program ending before the intended date of September 2016.

“Investors are finding their feet after the recent sharp selloff,” said Nick Stamenkovic, a fixed-income strategist at broker RIA Capital Markets Ltd. in Edinburgh. “The ECB has clearly signaled that they are committed to their program.”

Confidence Wanes

In another sign that Europe’s largest economy is losing momentum, the Ifo institute said Friday its business climate index for Germany dropped to 108.5 from 108.6 in April, supporting the ECB’s stance on its purchases of 60 billion euros a month of debt.

Spain’s 10-year bond yields were little changed on Friday at 1.78 percent, and those on similar-maturity Italian debt were 1.85 percent.

The extra yield, or spread, that investors get for holding the Italian securities instead of Spain’s was eight basis points, the most since Feb. 16, based on closing-price data compiled by Bloomberg.

The yield on Greek 10-year bonds rose 14 basis points to 11.39 percent, extending this week’s increase to 63 basis points, the most since the week ended April 17.

Trading in Greek government bonds is scant, with no turnover through the central bank’s electronic secondary securities market, or HDAT, on Friday, according to Athens News Agency, or ANA.

Data from the Bank of Greece showed trading volume across all maturities totaled 2 million euros in April, the least since February 2012. Volumes plunged to zero in October 2011 after peaking at 136 billion euros in September 2004, the central-bank data showed.