Germany’s Notes Hold Onto Decline as Confidence Beats Estimates

  • Securities in longest run of losses since August 2015
  • Ifo data suggest nation’s companies weathering Brexit fallout

German two-year notes held onto the longest slide since August as a report gave an early indication that Europe’s biggest economy may be weathering the fallout from last month’s Brexit vote.

Yields on the securities touched the highest since Britain’s decision to quit the European Union was announced on June 24. Ten-year bunds fell earlier as the Ifo institute’s German business-climate index dropped less in July than economists predicted.

“Everybody expected a more severe market impact from the British vote, and it seems they’re reversing their opinion now,” said Birgit Figge, a fixed-income strategist at DZ Bank AG in Frankfurt. “Sentiment now is positive, but worries about Brexit led to uncertainty. Growth might be curbed later this year.”

Germany’s two-year note yield was little changed at minus 0.61 percent as of 4:21 p.m. London time, after reaching minus 0.60 percent. The price of the zero percent security due in June 2018 was 101.159 percent of face value.

The seven days of declines through Friday were the longest run of losses for the securities since Aug. 31, 2015.

The Ifo report kicks off a week of data that will give bond investors the first comprehensive picture of the euro-zone economy since Brexit. European Central Bank President Mario Draghi said last week that officials won’t hesitate to add fresh stimulus as needed once the impact of the U.K.’s decision becomes clearer.

German Exception?

Economists surveyed by Bloomberg predict a rougher ride for the euro area as a whole. In a report due Friday, regional inflation is forecast to have languished at just 0.1 percent this month, while confidence in the economy, industry and the business climate are all expected to be worse in July.

That may spur the ECB to boost monetary stimulus sooner rather than later, supporting higher-yielding bonds more than havens such as German government securities.

Yields on Germany’s 10-year bund fell one basis point, or 0.01 percentage point, to minus 0.04 percent, having reached minus 0.01 percent. They may climb another five to 10 basis points in the short term before topping out, according to DZ Bank’s Figge.

Before it's here, it's on the Bloomberg Terminal.