German Bonds in Worst Month Since 2013 Amid Global Selloff

  • Bund yield rises to highest since May as traders reassess QE
  • Germany’s inflation picks up to two-year high in October

Bond Selloff: Exit the Bulls, Enter the Bears?

German bonds headed for their worst month since 2013 as a global selloff deepened amid speculation major central banks are moving closer to reining in stimulus.

Yields on Europe’s benchmark 10-year securities rose earlier to the highest in almost six months. Ten-year debt yields in the U.S. and Australia also climbed to levels last seen in May, buoyed by expectations that the Federal Reserve will raise interest rates this year and amid signs that global inflation is accelerating.

A report showed consumer prices in Germany rose this month at the fastest annual pace in two years, adding to signs that the European Central Bank’s efforts to revive price growth in the region are paying off.

“The premise of the selloff so far was higher inflation and uncertainty on what the ECB is going to do next and particularly about how the next leg of quantitative easing would look,” said Peter Chatwell, head of rates strategy at Mizuho International Plc in London. “These conditions remain in place, so it’s difficult to envisage markets finding strong support until there is much stronger conviction as to the ECB.”

German 10-year bund yields were little changed at 0.17 percent as of the 5 p.m. close in London, after rising to 0.22 percent, the highest since May 5. The price of the zero percent security due in August 2026 was 98.379 percent of face value.

Yields on the securities rose 29 basis points, or 0.29 percentage point, in October, the biggest monthly increase since May 2013. Euro-zone bonds declined earlier this month amid speculation that the Frankfurt-based ECB was preparing to pare its 1.7 trillion-euro asset-purchase program, which is scheduled to run until at least March 2017.

Inflation Quickens

German consumer prices rose 0.7 percent from a year ago, compared with 0.5 percent the previous month, the Federal Statistics Office in Wiesbaden said. The reading was in line with the median forecast in a Bloomberg survey of economists. Prices rose 0.2 percent from September.

Italy’s 10-year bonds declined for a third day, pushing up yields to the highest level since U.K.’s Brexit vote in June, as the Treasury in Rome sold 8.5 billion euros of debt, including securities due in December 2026.

Yields on Italian 10-year bonds climbed five basis points to 1.59 percent, having reached 1.65 percent, the highest since June 24. Similar-maturity Spanish debt yields increased three basis points to 1.23 percent.

U.K. gilts spurred a decline in global bonds Thursday after a report showed Britain’s economy grew more than forecast in the third quarter, paring expectations that the Bank of England will cut interest rates further to cushion against Brexit fallout. The selloff pushed the yield on German five-year notes above the ECB’s minus 0.4 percent deposit rate, making eligible for purchase under the institution’s quantitative-easing program.

The yield on 10-year gilts rose one basis point to 1.26 percent, after reaching 1.31 percent, the highest since June 23, the day of the U.K.’s referendum.

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