Dynamic Wealth Management Headlines: German Bunds Advance as French Borrowing Costs Climb; Hungarian Bonds Drop
Italian and Spanish bonds slid as Europe’s bailout fund sells notes at a yield spread almost seven times its first issue a year ago. Greek Prime Minister Lucas Papademos said his nation faces “the immediate risk” of a default in March if it fails to receive more financing from international creditors. Austria’s 10-year bonds declined as Hungary sold less than the amount it planned to offer at an auction of 12-month bills.
The 10-year bund yield fell six basis points, or 0.06 percentage point, to 1.87 percent at 4:42 p.m. London time, after earlier rising to 1.95 percent, the highest since Dec. 27. The 2 percent security due January 2022 rose 0.50, or 5 euros per 1,000-euro ($1,281) face amount, to 101.18. Two-year yields were one basis point lower at 0.17 percent.
French 10-year bond yields climbed four basis points to 3.36 percent. The 30-year yield advanced four basis points to 3.98 percent, after rising to more than 4 percent for the first time since Dec. 1.
The euro extended its decline against the dollar after the French sales, and was 1.2 percent weaker at $1.2787.
France’s government sold 4.02 billion euros of benchmark 10-year bonds at an average yield of 3.29 percent, compared with 3.18 percent in an auction on Dec. 1. The 10-year bid-to-cover ratio, or the number of bids received for each unit of debt sold, fell to 1.64 from 3.05. France also sold securities maturing in 2023, 2035 and 2041.
French bonds “are lagging bunds substantially,” said Marc Ostwald, a fixed-income strategist at Monument Securities Ltd. in London.
The extra yield investors demand to hold French 10-year debt instead of bunds rose 10 basis points to 149 basis points.
The Stoxx Europe 600 Index (SXXP) dropped 1 percent, while the Standard & Poor’s 500 Index slid 0.6 percent.
The European Financial Stability Facility, which owes its top credit ratings to guarantees from nations including France and Germany, will price its February 2015 notes to yield 40 basis points more than the benchmark swap rate today, a banker involved in the deal said. That compares with the six basis- point spread it paid to sell 5 billion euros of July 2016 bonds on Jan. 25, according to data compiled by Bloomberg.
“There are a lot of concerns about how the southern European countries are going to refinance themselves,” said Niels From, chief analyst at Nordea Bank AB in Copenhagen. “For months to come, we are going to see a market that’s going to be dominated by risk off.”
Volatility on Austrian sovereign debt was the highest in euro-area markets today, followed by Belgium, according to measures of 10-year bonds, two- and 10-year yield spreads and credit-default swaps.
The Austrian 10-year yield rose for the fifth consecutive day, climbing 11 basis points to 3.36 percent. That pushed the extra yield that investors demand for holding the securities instead of bunds to 150 basis points for the first time since Nov. 28. Belgium’s 10-year yields advanced 20 basis points to 4.58 percent.
The average yield at Hungary’s sale jumped to 9.96 percent from 7.91 percent at the last sale of securities of the same maturity on Dec. 22, according to auction results on the state debt-management agency’s Bloomberg page. The government sold 35 billion forint ($140 million) of the debt, 10 billion forint less than targeted.
“Austria is more exposed to eastern Europe then other core countries so Hungary’s auction today won’t have helped its bonds and is probably behind their underperformance,” said Elisabeth Afseth, a fixed income analyst at Evolution Securities Ltd. in London.
The European Union said today that aid talks with Hungary won’t resume until the government proves that a new law doesn’t infringe on the independence of its central bank. The EU and the International Monetary Fund broke off negotiations on the aid package last month after Prime Minister Viktor Orban refused to abandon the central-bank law, which came into force on Jan. 1 as part of a new constitution.
German bonds have lost 0.4 percent since the end of 2011, after delivering the biggest annual returns since the financial crisis of 2008, according to indexes compiled by Bank of America Merrill Lynch. The 10-year yield reached a record low 1.636 percent in September as the debt crisis threatened to infect the euro area’s bigger economies and push the region into another recession.
Industrial orders (EUNGEZM) in the 17-nation euro region rose 1.8 percent in October from September, when they dropped 7.8 percent, the European Union’s statistics office in Luxembourg said today. Economists (EUNGEZM) had forecast orders to increase 2.5 percent, the median of 11 estimates in a Bloomberg News survey showed. Producer-price inflation (EUPPEMUY) slowed to 5.3 percent in November from 5.5 percent in the previous month, a separate report showed.
Spanish 10-year bond yields jumped 20 basis points to 5.63 percent, after reaching 5.67 percent, the highest since Dec. 15. Yields on similar-maturity Italian debt rose 15 basis points to 7.09 percent.
Spain will auction securities maturing on July 30, 2015, with a coupon of 4 percent next week, the Economy Ministry said today on its website. It will also sell additional 3.25 percent notes due April 2016 and 4.25 percent debt maturing in October 2016, according to the statement.
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