Germany’s Biggest Bond Rally Since June Pauses Before PMI Data

  • Spain’s 10-year bond yield climbs from an all-time low
  • German 30-year yields set for biggest weekly drop since June

A rally in Germany’s 30-year bonds paused as investors waited for euro-region manufacturing and services data to gauge whether the economic outlook justifies bets on additional European Central Bank stimulus.

Yields rose across the curve, after dropping this week following the Federal Reserve’s decision to refrain from raising interest rates and scale back predictions of future policy tightening. Spanish 10-year bond yields climbed from an all-time low. After being held back earlier in the month by the ECB’s failure to signal an immediate extension of stimulus, bonds surged with other assets Thursday as the Fed soothed concern that central banks globally would taper stimulus efforts.

A composite Purchasing Managers Index for the 19-nation region was at 52.8 this month, according to the median estimate of economists in a Bloomberg survey. While the August reading of 52.9 was the lowest since January 2015, it was still above the 50 level that separates expansion from contraction.

“The high point of the week in economic releases is arguably today’s preliminary September PMIs,” analysts led by Peter Chatwell, head of rates strategy at Mizuho International Plc in London, wrote in a client note. “Our view on fixed income remains bullish, but we would stress that a strong reading would boost fear that the ECB is pausing due to better data. In the context of yesterday’s bull-flattening, we think there is a risk of an over-reaction in case of a beat.”

Germany’s 30-year bund yield rose two basis points, or 0.02 percentage point, to 0.49 percent as of 8:36 a.m. London time, after sliding 12 basis points on Thursday, the steepest decline since June 24. The 2.5 percent security due in August 2046 fell 0.555, or 5.55 euros per 1,000-euro ($1,121) face amount, to 155.919. The yield has dropped 15 basis points this week, the most since June 10.

The nation’s benchmark 10-year bund yield increased two basis points to minus 0.08 percent, while that on similar-maturity Spanish debt climbed two basis points to 0.94 percent.