Europe's Bonds Extend Advance on Global Growth-Slowdown Concerns

  • Ireland mandates banks for sale of bonds maturing in 2026
  • Germany matches lowest yield on record in sale of 2-year notes

Euro-region government bonds gained, pushing the yield on 10-year German debt to the lowest in more than a month, as signs of slowing global growth and a further drop in oil boosted demand for fixed-income assets.

Italian bonds rose for a fourth day, extending an advance Tuesday when data showed euro-zone inflation unexpectedly stalled near zero in December. Debt securities stayed supported even after a report Wednesday showed manufacturing and services activity in the 19-nation bloc expanded more than economists predicted. European Central Bank Executive Board member Peter Praet said officials are ready to take all measures necessary to bring inflation to 2 percent as Brent crude prices fell to an 11-year low of about $35 a barrel.

Bonds have rallied at the start of 2016 as a rout in Chinese stocks and deteriorating relations between Saudi Arabia and Iran prompted investors to seek out havens. While North Korea’s claim that it successfully detonated its first hydrogen bomb was disputed by some experts, news of the test supported government securities, while speculation built that the ECB will extend its debt-purchase plan to get consumer prices rising.

“We’ve started this year in a funk,” said Richard Kelly, head of global strategy at Toronto-Dominion Bank in London. “You had the big liquidity shock out of China the first day back, and from that perspective fixed income is still prone to rallying.”

Record Result

Germany sold debt due in December 2017 with an average yield of minus 0.38 percent, matching the record-low set in November and compared with minus 0.32 percent at a Dec. 9 auction. The nation received enough bids to reach its sales goal.

Markets are returning to the idea that “if the data doesn’t come in great and inflation stays low, maybe the ECB will be fine to come in at some point in the future,” Kelly said.

Benchmark German 10-year bund yields fell three basis points, or 0.03 percentage point, to 0.51 percent as of 4:31 p.m. London time, after reaching 0.49 percent, the lowest since Dec. 3. The 1 percent security due in August 2025 rose 0.265, or 2.65 euros per 1,000-euro ($1,076) face amount, to 104.56.

A Purchasing Managers’ Index for manufacturing and services in the region rose to 54.3 in December, from 54.2 the prior month and compared with an estimate for a drop to 54, Markit Economics said. A level above 50 indicates expansion.

Irish bonds pared gains made earlier in the day as the nation was said to have mandated banks to sell debt due in 2026. Its benchmark 10-year bond yield fell two basis points to 1.03 percent, after slipping to a one-month low of 0.98 percent.

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