HuntedRelated

German Bonds Gain Pushes 10-Year Yields to 13-Month Low on Iraq

Germany’s 10-year government bonds advanced for a third day, pushing the yield to the lowest in 13 months, as escalating violence from the Middle East to Ukraine fueled demand for the securities as a haven.

German bunds rose even as a report showed consumer confidence in Europe’s largest economy will climb in July to the highest since 2006. Bunds outperformed their Italian counterparts as Italy began selling about 19 billion ($25.9 billion) of securities over three days amid bets that a European Central Bank-fueled rally made higher-yielding assets too expensive. Spanish 10-year bonds fell for the first time in three days after yields dropped yesterday to a two-week low.

“Bunds are benefiting from rising risk aversion associated with the situation in Iraq,” said Nick Stamenkovic, a fixed-income strategist at broker RIA Capital Markets in Edinburgh. “Investors are plumping for the liquidity” offered by the German debt “against the backdrop of increased uncertainty,” Stamenkovic said.

Germany’s 10-year yield decreased three basis points, or 0.03 percentage point, to 1.29 percent at 12:32 p.m. London time, the least since May 10, 2013. The 1.5 percent bond maturing in May 2024 gained 0.29, or 2.90 euros per 1,000-euro ($1,361) face amount, to 101.945. The yield has dropped 68 basis points from its 2014 high reached on Jan. 2.

Iraqi Militants

Sunni militants are consolidating their hold on a swath of Iraq and now threaten the integrity of the state, U.S. military and intelligence officials said. Ukrainian President Petro Poroshenko called for immediate talks with Russia, Germany and France after pro-Russian rebels shot down a government helicopter in violation of a ceasefire.

Italian 10-year yields were little changed at 2.88 percent, while the rate on equivalent-maturity Spanish bonds rose two basis points to 2.68 percent.

The extra yield that investors get for holding Italian 10-year bonds instead of their German peers increased three basis points to 1.59 percentage points. The spread has still narrowed from 5.75 percentage points in November 2011. Spanish bonds yielded 1.39 percentage points more than bunds, up from 1.34 percentage points yesterday. That spread was as wide as 6.50 percentage points in July 2012.

Italy sold 3.5 billion euros of 2016 zero-coupon notes and 10-year inflation-linked bonds today. The Rome-based Treasury is scheduled to auction 7.5 billion euros of six-month bills tomorrow and as much as 8 billion euros of debt maturing between 2019 and 2024 the following day.

New supply “may be keeping a brake on the market,” said Marius Daheim, a senior fixed-income strategist at Bayerische Landesbank in Munich. “It’s not only Italy. We saw some decent gains yesterday. The larger picture probably is that we are already at expensive levels and the news flow is not that supportive anymore.”
Italy’s government securities have returned 8.8 percent this year through yesterday, Bloomberg World Bond Indexes show. Spain’s earned 9.6 percent and Germany’s gained 4.3 percent.