Even Yellen Couldn’t Shake German Bonds Out of Their Summer Lull

  • Ten-year bund yields have tightest weekly range since April
  • Lack of supply, ECB policy direction keeps bond bears at bay

Federal Reserve Chair Janet Yellen’s much-anticipated speech in Jackson Hole failed to budge Germany’s government bonds from their tightest weekly trading range in four months.

Benchmark 10-year bunds climbed Friday even as Yellen suggested that the case to raise U.S. interest rates is getting stronger and said that the world’s largest economy is approaching the central bank’s goals. Yet the yields were still confined to a weekly range of six basis points, the narrowest since April.

Movements in euro-area bonds have been restricted, with the European Central Bank not due to hold its policy meeting until Sept. 8 and Germany having auctioned government bonds on Wednesday for the first time in two weeks. Those effects, together with investors’ inflation expectations at a more-than-six-week low and the prospect of additional stimulus, have kept the bond bears at bay. Ten-year bund yields finished their sixth consecutive week below zero.

“While they tried to communicate optimism on the economy, there wasn’t much, especially for the German market,” said Antoine Bouvet, a London-based rates strategist at Mizuho International Plc. “What’s going to focus attention now is the supply picture returning in Europe.”

Germany’s 10-year bund yield fell two basis points, or 0.02 percentage points, to minus 0.09 percent as of 4:17 p.m. London time, extending its decline this week to six basis points. The zero percent security due in August 2026 rose 0.226, or 2.26 euros per 1,000-euro ($1,127) face amount to 100.929. On a monthly basis, the swing in yields is the smallest since 1991.

Spanish 10-year bonds were little changed before Acting Prime Minister Mariano Rajoy faces a confidence vote on Aug. 31, still short of the backing he needs to form a government and avoid a third round of general elections. The yield was at 0.92 percent, having dropped to a record 0.91 percent on Aug. 18.

The five-year, five-year forward inflation-swap rate, which ECB President Mario Draghi has cited in the past to guide monetary stimulus, was at 1.32 percent on Friday, little changed in the week.

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