Germany’s 10-Year Yields Turn Positive in Weekly Slide for Bundsby
Euro zone’s benchmark securities suffer worst week this year
After Brexit-spurred angst, markets are improving: UniCredit
Germany’s government bonds posted their first weekly slide since May as speculation central banks will attempt to boost the world economy with more monetary stimulus curbed demand for the safest assets.
Ten-year bund yields climbed above zero percent on Friday for the first time since the Brexit referendum result. Yields were also driven up as the appointment of a new U.K. prime minister eased investor anxiety over the nation’s vote to leave the European Union. Germany auctioned new 10-year debt this week, its first with a negative yield, which also pushed benchmark yields higher.
“There’s been an improvement in risk appetite over the course of this week,” said Luca Cazzulani, a senior fixed-income strategist at UniCredit SpA in Milan. “After a week in which investors were dealing with the potential fallout of Brexit and trying to figure out what the consequences would be, moods have stabilized.”
The German 10-year debt yield rose four basis points, or 0.04 percentage point, to 0.003 percent as of 4:15 p.m. London time. The zero percent security due in August 2026 fell 0.435, or 4.35 euros per 1,000-euro ($1,106) face amount, to 99.965.
That left the yield up 19 basis points this week, its first weekly increase since May 20 and the biggest since Dec. 4.
Yields on the benchmark euro-zone securities have risen steadily since reaching a record-low of minus 0.205 percent on July 6. German bunds have returned 0.8 percent in the past month, according to Bloomberg World Bond Indexes. That’s less than the 2.7 percent gain in Spanish bonds and 2 percent return in Italy’s.
Attention now turns to the European Central Bank’s policy decision on July 21.
“Yields were starting from a very low point, so by that point there was quite a bit of negative news priced in,” Cazzulani said. “If you don’t expect the ECB to cut rates, and if you also think the central bank will at some point deal with the potential scarcity in the bund market, you don’t have many reasons to keep buying these bonds.”