German bonds lag behind higher yielding peers on stimulus wagers

Bloomberg

Germany’s government bonds lagged behind their higher-yielding peers as speculation major central banks will inject another dose of monetary stimulus curbed demand for the safest assets.
Italian 10-year securities rose for a second day, while the extra yield Spanish bonds offer over German debt narrowed to the least since March.
The split in the market came before an anticipated interest-rate cut from the Bank of England later on Thursday, and followed Theresa May’s accession as U.K. prime minister.
Her appointment eased the political instability that has afflicted the nation — one of the euro zone’s biggest trading partners — since its decision to quit the European Union.
“Risk sentiment has improved a lot since the Brexit vote,” said Mohit Kumar, head of rates strategy at Credit Agricole SA’s corporate and investment-banking unit in London. “That’s reflected in core government bonds, peripheral debt and risky assets. There’s an expectation for further stimulus from key central banks.”
The yield on Germany’s 10-year bund was at minus 0.06 percent as of 10:34 a.m. London time, with the price of the zero percent security due in August 2026 at 100.60 percent of face value. The benchmark yield touched a record-low of minus 0.205 percent last week.

Peripheral Moves
Italy’s 10-year bond yield dropped two basis points, or 0.02 percentage point, to 1.19 percent, while Spain’s fell one basis point to 1.13 percent. The Spanish-German yield spread declined to 1.19 percentage points, the smallest on a closing-price basis since March 16.
Improving sentiment is boosting assets considered higher-risk by investors beyond the bond market. An index of global stocks erased its post-Brexit decline on Tuesday and is headed for its highest close since December.
Even so, recent debt-market moves are a reversal of what’s happened for most of 2016. German bunds have handed investors 6.7 percent this year, beating the 3.8 percent return on Italian securities and the 5.4 percent gain in Spanish debt, data compiled by Bloomberg show.
The safest “bonds are softer today as stocks outperformed,” said Nick Stamenkovic, a fixed-income strategist at Edinburgh-based broker RIA Capital Markets Ltd.
“Still, the uncertain global outlook, disinflation pressures and continued demand for yield look set to keep bond yields low for some time.”