Bunds Fall on Lackluster Sale

German auction raises less than target; Spain bonds gain

German bunds fell for the first time in four days as the nation received bids for less than the maximum target at a sale of 10-year debt amid easing concern the debt crisis is worsening.

Spain’s government securities rallied, with 10-year yields falling from the highest this year, after European Central Bank executive board member Benoit Coeure signaled the institution may resume its program of sovereign-debt purchases. Italy’s bonds advanced even after borrowing costs increased as the country sold 11 billion euros ($14.4 billion) of Treasury bills.

For Germany “to attract demand at such low levels requires that a sort of risk-off momentum is in the background as the bidding takes place, whereas it’s kind of taken a breather from the open this morning,” said John Davies, a fixed-income strategist at WestLB AG in London. Coeure’s comments “would be helpful to risk appetite,” he said.

The yield on German 2 percent bonds maturing in January 2022 rose seven basis points, or 0.07 percentage point, to 1.71 percent at 1:23 p.m. London time. The price fell 0.615, or 6.15 euros per 1,000-euro face amount, to 102.565.

Two-year note yields climbed five basis points to 0.15 percent after sliding to 0.091 percent yesterday, the lowest since Bloomberg began collecting data on the securities in 1990.

Germany received bids for 4.11 billion euros at the auction of new benchmark 10-year bonds due in July 2022, compared with a maximum target of 5 billion euros. It sold the securities at a record-low average yield of 1.77 percent.

“All this really means is that, given the facts available to the market today, bunds had run a bit too rich,” said Peter Chatwell, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “For the moment we might retreat away from 1.75 percent in yield, perhaps back to the 1.80-2 percent range in the immediate future.”

The German Finance Agency said the sale was a “good result” in the context of “slightly increased uncertainty” on markets, according to an e-mailed statement. The agency said 36 of the 39 primary dealers took part in the auction.

Spanish 10-year yields declined the most in almost six weeks after the ECB’s Coeure said the recent selloff in the securities wasn’t justified.

“Will the ECB intervene?” he said at an event in Paris. “We have an instrument, the securities markets program, which hasn’t been used recently but it still exists.”

Spain’s 10-year yield dropped 11 basis points to 5.87 percent after falling as much as 15 basis points, the biggest decline since March 1.

The yields have still jumped about 1 percentage point since March 2, when Prime Minister Mariano Rajoy said the country will miss a 2012 deficit goal approved by the European Union.


Italian Sale

Italy’s 10-year yield slid 18 basis points to 5.51 percent, and two-year yields dropped 13 basis points to 3.43 percent.

The Rome-based Treasury auctioned 8 billion euros of 361- day bills at 2.84 percent, up from 1.405 percent at the previous sale of similar-maturity debt on March 13. Investors bid for 1.52 times the amount offered, up from 1.38 times last month. The country also sold 3 billion euros of three-month bills at 1.249 percent, compared with 0.492 last month.

Italy is scheduled to auction as much as 5 billion euros of bonds tomorrow.

Volatility on German bonds was the highest in euro-area markets followed by France, according to measures of 10-year bonds, two- and 10-year yield spreads and credit-default swaps. The change in the yield was 1.8 times the 90-day average.


Bloomberg News


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