German Bund Yields Verge on Level That Helped Spark 2015 Selloff

  • Spain-Germany 10-year spread widens most since March 23
  • Demand for havens also gets boost from decline in stocks

The latest gains in German bonds, underpinned by a report showing economic gloom in the region is far from from lifting, are pushing yields toward levels that left some investors bloodied last year.

Ten-year government bonds climbed for a fourth day, pushing the yield below 0.1 percent for the first time in almost a year, while those on similar-maturity French bonds also slid to the lowest since April 2015. In a sign investors had turned more conservative, the extra yield they demand to own Spanish 10-year sovereign bonds compared with similar-maturity German debt jumped by the most since March 23.

Across Europe, the safest fixed-income assets were supported by stocks falling in region and by the prospect of prolonged deflationary pressures that are supporting the case for the European Central Bank to maintain or boost its stimulus measures. Austria sold 2026 bonds at the lowest yield for that maturity since May.

“There are worries about the global economy, and bunds are still a safe haven and are climbing higher” as a result, said Christian Reicherter, an analyst at DZ Bank AG in Frankfurt. “In this environment bunds are still the place to go.”

Benchmark German bund yields are approaching the record-low level they reached in April 2015, buoyed in part by the ECB increasing its monthly bond purchases of euro-zone debt by one-third to 80 billion euros ($91 billion) starting April. The danger for bulls is that they may suffer a repeat of last year, when a buyers’ strike led to a sudden drop in prices that pushed yields to more than 1 percent less than two months later and spread to other markets.

Global Economy

Germany’s 10-year bund yield fell three basis points, or 0.03 percentage point, to 0.098 percent at 4:04 p.m. London time, after earlier reaching 0.081 percent, the lowest since April 2015. The yield skidded to a record low 0.049 percent that month. The 0.5 percent bond maturing in February 2026 on Tuesday gained 0.33 or 3.30 euros per 1,000-euro face amount, to 103.945.

The Spain-Germany yield spread increased by seven basis points to 1.40 percentage point.

Orders, adjusted for seasonal swings and inflation, dropped 1.2 percent from the prior month, when they rose a revised 0.5 percent, data from Germany’s Economy Ministry in Berlin showed on Tuesday. That compared with a median estimate for an increase of 0.3 percent in a Bloomberg survey.

Markit Economics’ composite Purchasing Managers Index for the euro area rose 53.1 in March from 53 in February, below the initial reading of 53.7 published March 22.

3.4% Return

Holders of euro-area sovereign debt securities have earned 3.4 percent this year so far, more than the 1.8 percent they got for the whole of 2015. Between the bottom in yields on April 17 and the 2015 peak on June 10, they suffered a 5.7 percent loss.

“It came out of nowhere last year,” DZ Bank’s Reicherter said. “It can’t be ruled out that there can be another big bang this time.”

France’s 10-year bond yield dropped two basis points to 0.44 percent and Austria’s fell three basis points to 0.31 percent. Portugal’s 10-year bond yield increased 21 basis points to 3.15 percent, the most since Feb. 11.

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