German Bonds Post Worst Week This Year as Oil to Stocks Rally

  • ECB corporate-bond buying may damp demand for government debt
  • Bonds also hurt by more than $26 billion of fresh supply

Germany’s 10-year government bonds had their worst week this year as stocks posted a second weekly gain and a gauge of commodity prices reached the highest since November, damping demand for the safest fixed-income assets.

German 10-year bund yields jumped the most since December this week as European Central Bank President Mario Draghi announced Thursday details of the institution’s corporate-bond purchases, which are due to start in June and have fueled suggestions that they’ll curb demand for sovereign debt. More than 23 billion euros ($26 billion) in government-bond sales this week also weighed on the securities, pushing yields higher across the region.

“During the week there was a general improvement in risk appetite and a lot of supply,” said Luca Cazzulani, a senior fixed-income strategist at UniCredit SpA in Milan. “Plus, oil prices were up, also something that reflects improvement in risk appetite. We have expectations for even higher yields into year-end.”

Benchmark German 10-year bund yields were little changed Friday, at 0.23 percent as of 4:42 p.m. London time. The price of the 0.5 percent security due in February 2026 was at 102.58 percent of face value. The yield climbed 11 basis points, or 0.11 percentage point, this week, the biggest increase since Dec. 4.

Yield Forecast

It will rise to 0.5 percent by year-end, according to a Bloomberg survey of economists, with the most recent forecasts given the heaviest weightings.

The ECB kept interest rates unchanged on Thursday, along with the size of its bond-buying program. Draghi said officials were instead focusing on implementing measures announced in March, such as corporate-debt purchases and new longer-term loans to banks. A Bloomberg survey earlier this week showed 60 percent of analysts believe the ECB will ease further.

Germany’s 10-year yield approached the highest in a month, even as Purchasing Managers Indexes for the region showed growth was little changed in the services and factory sectors this month. Markit said its composite PMI slipped to 53 in April from 53.1 in March, with 50 the key dividing line between growth and contraction.

Even after this week’s decline, German bonds returned 3.3 percent this year through April 21, putting them among the top performers in Europe, just behind Belgian and French securities, according to Bloomberg World Bond Indexes. The securities have gained as the ECB soaks up the region’s debt in its asset-buying program that was expanded in recent weeks to 80 billion euros a month.

Italy’s 10-year bond yield rose two basis points to 1.48 percent, leaving this week’s increase at 14 basis points, the most since December. The yield on similar-maturity Spanish bonds was little changed at 1.60 percent, leaving the weekly increase at 10 basis points.

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