Germany’s Bonds Undisturbed as Sales Resume After Two-Week Break

Updated on
  • Nation auctions 4 billion euros of five-year securities
  • Benchmark 10-year bund yields are in tightest range since 1991

Germany’s latest five-year note auction showed little sign of shaking the nation’s government bonds from their slumber, or raising yields that are firmly entrenched below zero.

The country’s first bond offering in two weeks attracted enough investor demand to match a record-low auction yield, even as the securities remain ineligible for the European Central Bank’s asset-purchase program because they yield less than the ECB’s deposit rate of minus 0.4 percent.

“Supply is thin on the ground with the summer doldrums, and Germany is the exception,” said Nick Stamenkovic, fixed-income strategist at broker RIA Capital Markets Ltd. in Edinburgh. “With the ECB continuing to purchase significant amounts of bonds, that provides a natural bias. We are stuck with a very low-volatility, trade-range environment amid a very favorable supply-demand picture.”

German five-year note yields were little changed at minus 0.513 percent as of 4:07 p.m. London time. The price of the zero percent security due in October 2021 was 102.665 percent of face value. The yield dropped to a record-low minus 0.635 percent on June 24.

Germany auctioned 4 billion euros of the five-year notes at an average yield of minus 0.51 percent, matching that at the previous sale on July 20. The nation’s last bond offering was on Aug. 10, when it sold 10-year debt.

Narrow Ranges

While Treasury 10-year note yields are confined to the tightest monthly range in a decade before Federal Reserve Chair Janet Yellen speaks Friday, similar-maturity German yields are moving the least since September 1991, according to closing-price data compiled by Bloomberg.

Benchmark 10-year bund yields dropped Tuesday to the lowest in a week as a report showed German services industries expanded at the slowest pace in 15 months in August, signaling Europe’s largest economy lost some momentum even as it largely withstands the U.K.’s vote in June to leave the European Union.

Government bonds across the region have been supported by speculation the ECB will expand its stimulus as it struggles to boost inflation, while record-low yields reduce the amount of securities available for inclusion in its quantitative-easing program.

Benchmark 10-year bund yields, which were little changed at minus 0.085 percent Wednesday, are in a 10 basis-point, or 0.10 percentage point, range this month.