Bunds rout extends on recovery signs as investors wait on Greece
Germany’s government bonds fell, extending a rout that pushed 10-year yields up last week by the most since 1998 amid an economic recovery that’s gathering pace.
In a sign of limited contagion from Greece’s divisions with creditors, a slide in that nation’s bonds hasn’t been enough to boost German bunds, which are perceived to be a haven. Declines by Italian securities earlier on Monday pushed the 10-year yield to the highest level since November. Industrial output in Europe’s largest economy rose in April more than analysts predicted and exports jumped the most this year, separate reports showed.
“Bunds looks set to remain on a slippery slope with upbeat macro data compounding the impact of self-feeding volatility,” Michael Leister, a senior rates strategist at Commerzbank AG in Frankfurt, wrote in a note to clients. “Peripherals look unlikely to benefit materially from struggling bunds as risk- taking capacity remains subdued and Greece unresolved.”
The yield on German 10-year bunds rose two basis points, or 0.02 percentage point, to 0.87 percent as of 10:51 a.m. London time. The 0.5 percent security due in February 2025 declined 0.2, or 2 euros per 1,000-euro ($1,113) face amount, to 96.61. The yield jumped 36 basis points last week, the biggest increase since October 1998.
Italy’s 10-year bond yield was little changed at 2.23 percent after climbing to 2.30 percent, the highest since Nov. 20. The yield on similar-maturity Spanish bonds was 2.21 percent, having earlier touched 2.27 percent, the most since Oct. 21.
Inflation Returns
Last week’s selloff in bunds was sparked by a report showing consumer-price increases returned to the currency bloc in May for the first time in six months, combining with other data to signal the prospect of a deflation spiral had abated. European Central Bank President Mario Draghi on told investors on June 3 to get used to higher volatility in markets.
German industrial output adjusted for seasonal swings and inflation rose 0.9 percent in April after falling a revised 0.4 percent in March, data from the Economy Ministry in Berlin showed on Monday. The median estimate of economists in a Bloomberg survey was for a 0.6 percent gain. Exports jumped 1.9 from the previous month, the most since December, the Federal Statistics Office in Wiesbaden said.
“We’ve had better data, but the market is in a consolidation mode after the pretty big selloff we had last week,” said Allan von Mehren, chief analyst at Danske Bank A/S in Copenhagen. “Greece is looming in the background.”
Greek Prime Minister Alexis Tsipras, whose government was due to resume discussions with creditors on Monday, faced a united front from Group-of-Seven leaders calling for movement to end the impasse and avert the risk of wider economic reverberations. The country needs to seal an accord or get an extension before the euro area’s bailout expires on June 30, or risk missing payments on its debt of about 313 billion euros.
Greece’s 10-year bond yield rose 20 basis points to 11.42 percent, pushing its three-day increase to 70 basis points.
[Bloomberg]
