European Bonds Rise on Yellen Testimony as Region’s Growth Slows
European government bonds rose as Federal Reserve chairman nominee Janet Yellen signaled she will carry on the central bank’s stimulus until the U.S. economy improves, boosting demand for fixed-income assets.
Italian and German 10-year securities advanced for a second day after a report showed the euro-area’s economic growth slowed in the third quarter. Ireland’s bonds gained for the first time in three days as Prime Minister Enda Kenny said the country will exit its bailout without seeking a credit line. The Fed buys $85 billion of Treasuries and mortgage-backed debt each month to put downward pressure on borrowing costs.
“At face value, it seems like she’s at least indicating that she’s not prepared to start reducing bond purchases” yet, Marius Daheim, a senior fixed-income strategist at Bayerische Landesbank in Munich, said of Yellen. “The major market mover today was Fed commentary, and that was already visible in the open because we already knew what was in her prepared speech.”
Italy’s 10-year yield fell six basis points, or 0.06 percentage point, to 4.06 percent at 4:56 p.m. London time after dropping four basis points yesterday. The 4.5 percent bond maturing in March 2024 rose 0.47, or 4.70 euros per 1,000-euro ($1,348) face amount, to 104.03.
The German 10-year bund yield declined three basis points to 1.70 percent.
Yellen, the Fed’s vice chairman, voiced her commitment to using bond purchases known as quantitative easing to boost growth and lower unemployment that remains above 7 percent.
“I consider it imperative that we do what we can to promote a very strong recovery,” she said in response to a question during testimony today to the Senate Banking Committee in Washington. “Unemployment remains high.”
In three pages of prepared remarks for the hearing released yesterday, Yellen, said unemployment reflected a labor market and economy “performing far short of their potential.”
Dutch 10-year yields fell four basis points to 2.04 percent. Austria’s also declined four basis points, to 2.07 percent.
The euro-region economy expanded 0.1 percent last quarter, down from 0.3 percent in the previous three months, the European Union’s statistics office said. German gross domestic product rose 0.3 percent from the second quarter, when it increased 0.7 percent, the Federal Statistics Office said.
Ireland’s bonds advanced after Prime Minister Kenny told lawmakers in Dublin the nation will leave its aid program without the need to prearrange a safety net because it will be in a position to “fund ourselves in the market.”
Finance Minister Michael Noonan said last month there’s a “strong view” Ireland doesn’t need a credit line after amassing a cash pile of almost 25 billion euros, which he called a “credible backstop.” In September, he had signaled the government may ask for a 10 billion-euro credit facility when exiting the bailout from European partners and the International Monetary Fund.
The nation’s 10-year yield fell two basis points to 3.54 percent after declining to 3.48 percent on Nov. 1, the lowest level since May 29.
Volatility on Greek bonds was the highest in the euro-area markets, followed by those of Austria and Belgium, according to measures of 10-year debt, the yield spread between two- and 10-year securities and credit-default swaps.
Italian government bonds climbed 7 percent this year through yesterday, according to Bloomberg World Bond Indexes. Spain’s returned 11 percent, while Germany’s lost 1.3 percent.