German Bunds Rise 2nd Day on Concern ECB Measures to Fall Short
By Emma Charlton and Lucy Meakin on July 31, 2012
German government bonds rose for a second day amid speculation European policy makers will be unable to follow through on their pledge to shore up the single- currency area when they meet this week.Ten-year bund yields fell from the highest level in three weeks as investors returned to the region’s safest assets after a German report showed retail sales dropped in June and euro- area unemployment was at a record high. European Central Bank PresidentMario Draghi, who sparked a global market rally last week by pledging to do whatever it takes to preserve the euro, is trying to build consensus among governments and central bankers for a plan to ease borrowing costs in Spain and Italy.
“The market is having some second thoughts on what to expect on Thursday,” said Elwin de Groot, a senior market economist at Rabobank Nederland in Utrecht. “It’s clear that the discussion is starting to move and that’s a positive thing, but there’s also a clear risk that Draghi may have to disappoint.”
Germany’s 10-year bund yield declined five basis points, or 0.05 percentage point, to 1.33 percent at 12:39 p.m. London time after rising to 1.43 percent yesterday, the highest since July 5. The 1.75 percent security due in July 2022 gained 0.42, or 4.20 euros per 1,000-euro ($1,228) face amount, to 103.87.
The Frankfurt-based ECB meets to review policy decision on Aug. 2. The central bank supported the bond market in previous periods of financial turmoil by buying securities in the secondary market and by offering unlimited three-year loans under its Longer-Term Refinancing Operations, some of which banks reinvested in sovereign debt.
Draghi’s Pledge
“Within our mandate, the ECB is ready to do whatever it takes to preserve the euro,” Draghi said in a speech in London on July 26. “Believe me, it will be enough.”
German retail sales, adjusted for inflation and seasonal swings, fell 0.1 percent last month, after slipping 0.3 percent in May, the Federal Statistics Office said in Wiesbaden. Unemployment in the euro area was 11.2 percent in June, the European Union’s statistics office said in Luxembourg. That’s the highest since the data series started in 1995.
Spanish 10-year bond yields were little changed today at 6.61 percent after tumbling more than 1 percentage point in the previous four days. Italy’s 10-year yield was also little changed at 6.01 percent.
‘Down Significantly’
“The rate in Spain has come down significantly,” said Matteo Regesta, a senior fixed-income strategist at BNP Paribas SA in London. “There is a risk for the market to be disappointed. The market wants the real thing, for the ECB to show them the money. If it doesn’t show the money we’ll move back.”
U.S. Treasury Secretary Timothy F. Geithner and German Finance Minister Wolfgang Schaeuble issued a joint statement after meeting yesterday saying they “took note” of comments made last week by European leaders to safeguard the financial stability in the 17-nation currency area.
The European Financial Stability Facility, the region’s rescue fund, sold 1.5 billion euros of 1.125 percent bonds maturing in 2015 at an average yield of 0.54 percent. Investors bid for 3.7 times the amount of securities allotted, the Bundesbank said in a statement.
The rescue fund hasn’t been asked to intervene in the bond market, the European Commission said today. “I can confirm that there has been no request by any member state, as I said yesterday, to resort to further EFSF support,” commission spokesman Antoine Colombani told reporters in Brussels.
German debt has returned 1.4 percent this month, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spain’s securities dropped 0.9 percent, while Italy’s declined 0.7 percent.
Volatility on Finnish bonds was the highest in euro-area markets today, followed by the Netherlands and Germany, according to measures of 10-year debt, the spread between two- year and 10-year securities and credit-default swaps.
The most important thing is that every problem is immediately given those solutions. We can never blame it all the government. Help yourself too.
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