June 29, 2014

Euro-Area Bonds Drop as German CPI Data Quells Deflation Concern

Euro-area government bonds fell, with most securities paring a weekly gain, as reports showing German inflation quickened more than economists forecast allayed concern the euro bloc may slip into deflation.

Germany’s 10-year bunds halted a four-day advance that pushed yields toward the record low reached during the euro region’s debt crisis in 2012. French and Portuguese securities declined.

Italy’s bonds were little changed as the nation auctioned 8 billion euros ($10.9 billion) of securities due in 2019 and 2024.

“The German inflation numbers could dampen deflation fears slightly which could put markets lower,” said Christian Reicherter, an analyst at DZ Bank AG in Frankfurt.

“We are near the yield levels which we saw when people were discussing the breakup of the euro zone so we have to look if the current yield environment is at the right level,” he said, referring to rates on benchmark German debt.

German 10-year yields rose two basis points, or 0.02 percentage point, to 1.26 percent, as of 4:25 p.m. London time, having declined eight basis points this week.

The rate touched 1.237 percent yesterday, the lowest level since May 2013, and 11 basis points from the record-low 1.127 percent reached in 2012. The 1.5 percent bund due in May 2024 dropped 0.145, or 1.45 euros per 1,000-euro face amount, to 102.205.

Inflation Data

Germany’s annual inflation rate, calculated using a harmonized European Union method, climbed to 1 percent this month from 0.6 percent in May, the Federal Statistics Office in Wiesbaden said today. Economists predicted the rate would increase to 0.7 percent, according to the median estimate in a Bloomberg News survey.

France’s 10-year yield climbed two basis points to 1.71 percent, while the rate on similar-maturity Portuguese bonds climbed eight basis points to 3.57 percent. Italy allotted 2.5 billion euros of 10-year securities at a record-low average yield of 2.81 percent, down from the previous low of 3.01 percent set at a prior sale on May 29.

The Rome-based Treasury also sold 4 billion euros of five-year debt at 1.35 percent, the lowest on record, and 1.5 billion euros of floating-rate notes maturing in November 2019. Italian five-year yields were little changed at 1.36 percent.

The rate dropped 16 basis points this week. Italy’s 10-year bond yielded 2.83 percent, down from 2.95 percent on June 20. German securities returned 4.8 percent this year through yesterday, Bloomberg World Bond Indexes show. Spain’s gained 9.7 percent and Italy’s earned 9.1 percent.

bloomberg.com

No comments:

Post a Comment