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European bonds fall as Ukraine optimism damps demand for safety

European government bonds fell as talks between Russian President Vladimir Putin and a senior European official aimed at easing the crisis in Ukraine helped damp demand for safer assets.

Benchmark German 10-year bunds declined for a third day after Putin told the chairman of the Organization for Security and Cooperation in Europe Didier Burkhalter at a meeting in Moscow that all parties are interested in resolving the conflict. Austrian, Dutch and Spanish securities also dropped. Most euro-area sovereign bonds rose earlier amid speculation European Central Bank policy makers meeting tomorrow will discuss new measures to stimulate the region’s economy.

“Putin will have talks with the Organization for Security and Cooperation in Europe, so that’s why I think equities are slightly higher this afternoon and the bund is slightly lower,” said Mathias Van Der Jeugt, a research analyst at KBC Bank NV in Brussels. “Tomorrow, I don’t think we should expect further action. We believe the ECB will stay on hold.”

Germany’s 10-year yield rose two basis points, or 0.02 percentage point, to 1.48 percent at 3:09 p.m. London time after earlier declining as much two basis points. The 1.75 percent bund maturing in February 2024 fell 0.225, or 2.25 euros per 1,000-euro ($1,393) face amount, to 102.395.

The rate on Austrian 10-year debt climbed three basis points to 1.71 percent and that on similar-maturity Dutch bonds increased three basis points to 1.81 percent.

In their worst standoff with Russia since the fall of the Iron Curtain, the U.S. and European Union states have joined Ukraine’s government in accusing Putin of fomenting unrest in eastern Ukraine after his government annexed Crimea in March. Russia is pushing for Ukraine to devolve more power to its regions and give official status to the Russian language.

Volatility on German bonds was the highest in euro-area markets today, followed by those of the Netherlands and Finland, according to measures of 10-year debt, the yield spread between two- and 10-year securities and credit-default swaps.

Spain’s 10-year yield climbed two basis points to 2.97 percent after declining to a record 2.923 percent. The rate on similar-maturity Italian debt increased one basis point to 3.01 percent after earlier dropping to 2.974 percent, the least since Bloomberg began compiling data on the securities in 1993. Irish 10-year yields rose one basis point to 2.74 percent after falling to 2.716 percent, the lowest on record.

ECB policy makers meet in Brussels amid speculation they will discuss potential new stimulus measures to boost inflation that’s still less than half their goal. All but two of 58 analysts surveyed by Bloomberg News forecast the ECB will leave its main refinancing rate at a record-low 0.25 percent tomorrow. Policy makers last cut the rate in November.

Investors have been buying bonds of peripheral euro-area nations amid confidence the ECB will step in to support the debt should the region’s recovery falter. The average yield to maturity on bonds from Greece, Ireland, Italy, Portugal and Spain fell to 2.16 percent yesterday, the lowest in the euro era, according to Bank of America Merrill Lynch Indexes.

“In Europe we’ve now got Italy and Spain both through 3 percent on 10 years, mainly on the back of expectations the ECB is going to go in and buy,” Bill Blain, a London-based strategist at Mint Partners Ltd., said in an interview on Bloomberg Television’s “On The Move” with Francine Lacqua. “The ECB is not going to go in and buy. What they’ve done is the typical ECB thing of saying we’ll think about buying and planning it so the market then assumes it’s going to happen.”

German government securities returned 3.2 percent this year through yesterday, according to Bloomberg World Bond Indexes. Italy’s gained 7.2 percent and Spain’s earned 7.8 percent.

[Bloomberg]

ekathimerini.com , Wednesday May 7, 2014 (17:21)  
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