German Bonds Halt Rally as Investors Back Higher-Yielding Debt

  • Moves in bond markets are part of broad drop in risk aversion
  • European stocks rebound; pound rises as EU campaign suspended

German bonds fell for the first time in four days, while Spanish and Italian debt rallied as investors snapped up higher-yielding assets.

The moves reflected a pullback in the aversion to riskier assets that on Thursday sent yields on German debt, Europe’s benchmark sovereign securities, tumbling to records in maturities of as long as 10 years. The pound avoided a third weekly drop as campaigning for the June 23 referendum on Britain’s European Union membership was suspended.

“The general shift in risk sentiment explains the moves,” said Mathias van Der Jeugt, a strategist at KBC Bank NV in Brussels. “There’s also some profit-taking ahead of the weekend on the overbought core-bond rally. The same goes for peripherals which suffered a lot lately from the changing Brexit sentiment.”

Like the pound, European bonds have been moved around by the ebb and flow of opinion polls in the U.K. referendum campaign. Campaigning was put on hold after the murder of British lawmaker Jo Cox.

German 10-year bund yields rose four basis points, or 0.04 percentage point, to 0.02 percent as of 4:45 p.m. in London, a day after tumbling to an all-time low of minus 0.038 percent. The 0.5 percent security due in February 2026 dropped 0.41, or 4.10 euros per 1,000-euro ($1,125) face amount, to 104.655.

The yield on Spain’s 10-year bond fell four basis points to 1.56 percent, while that on Italian securities dropped three basis points to 1.51 percent. Both yields were still up in the week as the so-called peripheral bonds fell.

“Rather than these moves heralding a relief rally, we would see it as position-squaring heading into the weekend,” Rabobank analysts led by London-based head of rates strategy Richard McGuire wrote in a client note. “The market doesn’t want to be too exposed to newsflow.”

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