Bund Yield Falls to Record, Surpassing Euro-Crisis Levels German 10-year government bonds rose, sending yields to the lowest on record, surpassing levels set at the worst of the European sovereign-debt crisis. Unprecedented European Central Bank stimulus measures imposed to stave off deflation are boosting bonds across the region, with yields on debt from Finland to Italy falling to new lows today. Investors have been lured to the relative safety of German and so-called semi-core euro-area bonds as the U.S. and European Union prepare new sanctions against Russia following the downing of a Malaysian airliner over Ukraine and as Israel steps up its bombardment of Gaza. “Yields are going lower because the market expects the ECB to do more in the low-growth, low-inflation environment that we are in,” said Lyn Graham-Taylor, a fixed-income strategist at Rabobank International in London. “Month-end demand also helps. It’s a bit of a function of low inventories and everyone being careful about being short heading into month end.” A short position is a bet an asset’s value will drop. Benchmark 10-year yields fell two basis points, or 0.02 percentage point, to 1.13 percent at 9:45 a.m. London time after sliding to 1.119 percent, the least on record according to data compiled by Bloomberg dating back to 1989. The 1.5 percent bund due May 2024 rose 0.195, or 1.95 euros per 1,000-euro ($1,344) face amount, to 103.435. Unsustainable Finances The previous record-low yield of 1.127 percent was set in June 2012 when the euro-area crisis escalated as Greece’s finances became unsustainable and the spiraling debts of Spain and Italy spurred investors to dump those nations’ bonds, threatening the stability of the currency bloc. Since then, yields have fallen as ECB President Mario Draghi vowed to safeguard the euro with measures that may include the purchase of member nations’ bonds. The rally in German bonds this year has caught analysts by surprise. At the end of 2013, strategists were forecasting that Germany’s 10-year yield would rise to 2.28 percent by Dec. 31, 2014, from 1.93 percent at the time, according to data compiled by Bloomberg. The yield has instead dropped about 80 basis points this year. German securities returned 5.6 percent this year through yesterday, Bloomberg World Bond Indexes show. That compares with 3.5 percent for Treasuries.
Posted on: Tue, 29 Jul 2014 09:23:40 +0000
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