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Bloomberg
Germany’s 10-year government bonds held on to their biggest gain in more than two weeks as the nation auctioned five-year notes at a record-low yield before the European Central Bank announces its latest policy decision.
German sovereign debt has returned 1.1 percent in the past month while holders of Treasuries have been left with no gains, according to Bloomberg World Bond Indexes. That may reflect the prospect of a prolonged period of monetary stimulus in the euro area as the ECB buys assets under its public-sector purchase program, while the Federal Reserve is preparing to raise U.S. interest rates as early as this month.
“It makes sense to have a partial decoupling between the U.S. and euro curves because the U.S. is reacting more to recent Fed comments,†said Patrick Jacq, a senior fixed-income strategist at BNP Paribas SA in Paris. In the euro area “we still have the PSPP, which is a strong support and we have evidence that when the 10-year bund is close to 20 basis points, there is strong support, so clearly there’s a lot of protection,†he said.
Benchmark German 10-year bund yields were little changed at 0.13 percent as of 10:48 a.m. London time. The price of the 0.5 percent security due in February 2026 was 103.525 percent of face value. The yield fell three basis points, or 0.03 percentage point, Tuesday, the most since May 13.
The yield on Treasury 10-year notes fell one basis point to 1.84 percent.
Debt Sale
Germany sold 4 billion euros ($4.5 billion) of debt due in April 2021 at an average yield of minus 0.38 percent, the lowest on record since Bloomberg started tracking the auctions in 1993. That compares with a yield of minus 0.33 percent at a previous offering of the same securities on May 4. Investors bid for 1.49 times the amount of notes allotted on Wednesday.
A report on Wednesday showed euro-area manufacturing grew at a slower pace in May, damping confidence in the strength of the region’s economic recovery. Markit Economics’ Purchasing Managers Index slipped to 51.5 from 51.7 in April, the London-based company said. The reading was in line with a May 23 estimate and above the 50 threshold that divides expansion from contraction.
The ECB is expected to keep its stimulus plan unchanged on Thursday, according to economists surveyed by Bloomberg. The central bank announced in March an expansion of its monthly asset-purchase program by a third to 80 billion euros and a cut to the deposit rate further below zero.