Tags: germany | bond yield | europe | growth

Germany's Bond Gain Pushes 10-Year Yield Below 1 Percent as GDP Shrinks

Thursday, 14 Aug 2014 09:59 AM

Germany’s bonds rose, with 10-year yields falling below 1 percent for the first time, as Europe’s largest economy shrank more in the second quarter than analysts predicted, boosting bets on more central-bank stimulus.

France’s 10-year securities advanced a third day, pushing the yield down to a record, as separate reports showed the nation’s economy stagnated for a second quarter in the three months through June and the euro-area’s recovery stalled in the same period. Chancellor Angela Merkel’s government may start reducing the amount of German debt outstanding from as early as next year, according to a Finance Ministry report.

“A combination of weak growth, deflation risk and narrower supply will maintain a supportive ground” for bunds, said Alessandro Giansanti, a fixed-income strategist at ING Groep NV in Amsterdam. “The prospect of quantitative easing from the ECB is mounting and it’s having positive effects on the government bond market,” he said, referring to the European Central Bank.

Benchmark German 10-year yields fell one basis point, or 0.01 percentage point, to 1.01 percent at 10:13 a.m. London time after touching 0.998 percent, the least since Bloomberg began tracking the data in 1989. The 1.5 percent bund due in May 2024 rose 0.12, or 1.20 euros per 1,000-euro ($1,337) face amount, to 104.485.

The nation’s five-year rates dropped to an all-time low 0.203 percent while the two-year note yield reached minus 0.01 percent, the lowest level since May 2013. A negative yield means investors who hold a security until it matures will receive less than they paid to buy it.

Borrowing Cut

Gross federal borrowing in Germany will drop to 189.4 billion euros in 2015 from 206.1 billion euros this year, cutting net new borrowing to zero from 6.5 billion euros in 2014, according to a Finance Ministry report submitted to parliament in Berlin.

France’s 10-year bond yield dropped two basis points to 1.40 percent, after slipping to as low as 1.39 percent. Spanish two-year rates fell to a record 0.195 percent, while those on equivalent Italian securities reached 0.35 percent, also the least on record.

Germany’s gross domestic product fell 0.2 percent from the first quarter, when it rose a revised 0.7 percent, the Federal Statistics Office in Wiesbaden said.

The median forecast in a Bloomberg News survey of analysts was for a 0.1 percent contraction in the German economy, for which the outlook is clouded by the impact of international measures against Russia over its support of separatists in Ukraine.

Economy Stagnates

Euro-area GDP was unchanged from the first quarter, when it increased 0.2 percent, the European Union’s statistics office in Luxembourg said. The median forecast in a Bloomberg survey of analysts was for growth of 0.1 percent.

Prospects of the euro-region economy slipping back into recession and consumer prices rising at less than half the ECB’s target is driving demand for bonds and pushing yields down across the region. A report showed Spain’s annual consumer prices dropped in July at the fastest pace since 2009, supporting the case for the ECB to add to stimulus after it cut interest rates to record lows in June.

A separate report will show consumer prices in the currency bloc fell 0.6 percent last month, according to economists surveyed by Bloomberg.

Yield ‘Competition’

Ireland’s 10-year bond yield declined as much as three basis points to 2.128 percent, the least since Bloomberg started tracking the data in 1991. Rates on similar-maturity Belgian bonds slipped to 1.395 percent, also a record.

“There’s some fantasy here that we will see quantitative easing and this drives yields to such low levels,” said Christoph Kind, head of asset allocation at Frankfurt Trust, which manages about $20 billion. “It looks more like a sports competition to me to push yields as low as they’ve never been before.”

Portuguese bonds offer value because the yield spread to German bunds widened in recent months, Yannick Naud, chief investment officer at Sturgeon Capital Ltd., said in an interview with Manus Cranny and Mark Barton on Bloomberg Television’s “Countdown” program.

Portugal’s 10-year rate slipped nine basis points to 3.59 percent, leaving the gap with German peers with a similar due date at 258 basis points. The spread has widened from as low as 184 basis points on June 10, the narrowest since May 2010.

Germany’s 10-year break-even rate, a gauge of the consumer- price outlook derived from the yield difference between regular and index-linked bonds, fell one basis point to 1.18 percentage point, the lowest since at least 2009 based on closing prices, according to data compiled by Bloomberg.

German securities returned 6.4 percent this year through yesterday, Bloomberg World Bond Indexes show. Spain’s earned 11 percent, Italy’s 10 percent and France’s 7.9 percent.

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Germany's bonds rose, with 10-year yields falling below 1 percent for the first time, as Europe's largest economy shrank more in the second quarter than analysts predicted, boosting bets on more central-bank stimulus.
germany, bond yield, europe, growth
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2014-59-14
Thursday, 14 Aug 2014 09:59 AM
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