Euro Bonds Fall as Investors Look to Brave New World Without QE

Updated on
  • 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.

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