Euro Bonds Fall as Investors Look to Brave New World Without QEBy
Debt also weighed down by new supply entering market
BOE is latest central bank to signal shift from easy money
European bonds fell, with 10-year yields approaching the highest levels in months, as investors cleared the decks for a wave of new supply and looked toward a world without unprecedented stimulus.
The Bank of England’s announcement that it no longer expects to cut interest rates this year pushed the eventual end of the European Central Bank’s quantitative-easing program to the forefront of traders’ minds. Spain and France both sold debt, with mixed results.
“The BOE is sending a hawkish signal,” said Marius Daheim, a senior rates strategist at SEB AB in Frankfurt. “This is clearly bond-market negative.”
The yield on Germany’s 10-year bund, the euro zone’s benchmark government security, rose three basis points, or 0.03 percentage point, to 0.16 percent as of 4:25 p.m. in London. That’s approaching the level of 0.22 percent on Oct. 28, which was the highest since May.
The zero percent security due August 2026 fell 0.301, or 3.01 euros per 1,000-euro ($1,109) face amount, to 98.431.
Italian yields climbed four basis points to 1.70 percent, compared with a post-Brexit-vote high of 1.77 percent set on Nov. 1.
Spanish bonds dropped after the nation sold 3 billion euros of debt of varying maturities, including a 10-year issue where investors bid for 2.03 times the securities on offer, more than at the last auction. Ten-year yields added three basis points to 1.24 percent. They reached a four-month high of 1.31 percent at the start of November.
“There was a bit of profit-taking with Spain heading into the auction,” said Orlando Green, a rates strategist at Credit Agricole SA’s corporate- and investment-banking unit in London.