German Bonds' Best Week Since January Puts Pay to Rout Concern

  • Benchmark 10-year bunds post first weekly gain in a month
  • June's `major risk events' keeping investors cautious: DZ Bank

A selloff in German government bonds was stopped in its tracks this week, with 10-year securities heading for their best week since January.

The euro region’s benchmark sovereign debt posted the first week of gains since early April as a retreat in oil prices and faltering stock markets damped demand for riskier assets. The European Commission more than halved its inflation forecast for the currency bloc this week, bolstering speculation the European Central Bank will increase stimulus. German 10-year yields touched the lowest level in two weeks as a U.S. report showed employers added the fewest number of jobs in seven months in April.

The rally in bunds this month is in contrast with the selloff in May last year, before 10-year yields breached the 1 percent threshold in June amid a brightening economic outlook. A repeat of this is unlikely given that “major risk events” next month will likely keep haven securities supported, said Daniel Lenz, lead market strategist at DZ Bank AG.

“Since the beginning of May it seems there were quite enormous inflows into bunds,” Frankfurt-based Lenz said. “We have a clear risk-off pattern, which could be for the reason that in general investors seem to be cautious in May.”

German 10-year bund yields fell one basis point, or 0.01 percentage point, Friday to 0.15 percent as of 4:25 p.m. London time, after touching 0.14 percent, the lowest since April 18. The 0.5 percent security due in February 2026 rose 0.11, or 1.10 euros per 1,000-euro face amount, to 103.39. The yield dropped 12 basis points this week, the biggest decline since Jan. 29.

Lenz said events including the U.K.’s referendum on its membership of the European Union, elections in Spain and the Federal Reserve policy decision in June are keeping investors “a little sidelined in terms of risky assets.”

A U.S. Labor Department jobs report Friday showed employers added 160,000 workers in April, versus a revised gain of 208,000 a month earlier. The median forecast in a Bloomberg survey of economists was for an increase of 200,000.

The probability the Fed will follow its December rate increase with another next month has dropped to 4 percent from 75 percent at the start of the year, futures contracts indicate. The prospect of a rate increase by year-end this year is at 46 percent, down from 93 percent on Jan. 1.

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