Germany’s bonds rise as consumer prices decline in six states

Germany’s government bonds rose for the first time in three days after data showed consumer prices unexpectedly fell in October from the previous month in six states of Europe’s largest economy.

Italy’s securities declined after the nation sold five-year debt at the highest average yield since June. Greek 10-year yields jumped the most in two weeks as Minister of Administrative Reform Kyriakos Mitsotakis said investors face more volatility. Consumer prices in the state of Bavaria dropped 0.3 percent from September, signaling overall German inflation may slow this month.

“It shows, month on month at least, Germany is sliding into deflation,” said Alessandro Giansanti, a senior rates strategist at ING Groep NV in Amsterdam. “That would have very negative consequences for the whole eurozone, so that’s bullish for bunds.”

Benchmark German 10-year yields fell five basis points, or 0.05 percentage point, to 0.85 percent at 11:23 a.m. London time. The 1 percent bund due in August 2024 rose 0.42, or 4.20 euros per 1,000-euro ($1,259) face amount, to 101.37.

Overall German inflation, calculated using a harmonized European Union method, declined 0.1 percent on the month, according to the median forecast in a Bloomberg News survey of economists before the data is published at 2 p.m. Frankfurt time. Prices rose an annualized 0.9 percent in October, up from 0.8 percent last month, a separate Bloomberg survey shows.

The Rome-based Treasury allotted 2.5 billion euros of notes due in August 2019 at an average yield of 1.23 percent, up from 1.06 percent at a previous auction on Sept. 29. It also sold a combined 4.7 billion euros of bonds maturing in December 2024 and floating-rate notes due in 2020.

Italy’s 10-year yield rose three basis points to 2.54 percent. The rate on similar-maturity Greek debt climbed 56 basis points to 8.13 percent, the biggest increase since Oct. 16.

Mitsotakis said there will be a “climate of uncertainty” in Greece until February, by which time the government must elect a new president or the anti-bailout opposition party SYRIZA will force a snap election. Asked whether investors should just dump their Greek bond holdings until the next president has been installed, he said, “Don’t ask me, I’m just doing my job. Ask SYRIZA.”

Trading of Greek government debt through the electronic secondary securities market, or HDAT, was 65 million euros on Wednesday, ANA reported. Monthly trading volumes plunged to zero in October 2011 from a peak of 136 billion euros in September 2004, data compiled by the Bank of Greece show.

German securities returned 1.8 percent in the three months through Wednesday according to Bloomberg World Bond Indexes. Greece was the worst-performing euro-area sovereign debt market, losing 13 percent. Italy’s gained 0.8 percent and Spain’s earned 2.2 percent, the indexes show. [Bloomberg]

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