European Bond Yields Plummet

November 27th, 2014 8:00 am | by John Jansen |

As we prepare to give thanks here in the States Sovereign bond yields in Europe are plummeting as inflation data is soft and the anticipation of some type of additional stimulus increases. This morning 10 year Germany approached 70 basis points and 10 year Spain has dropped to 1.90. There was very strong foreign demand for the trio of US auctions earlier this week and this price action in Europe will only reinforce the relative value case for Treasuries.

Via Bloomberg:

German Bond Gains Push Yields to Record Low Amid ECB Speculation

By Lucy Meakin and David Goodman Nov 27, 2014 7:49 AM ET

Euro-area government bonds advanced, sending benchmark German 10-year yields to a record low, amid speculation slowing inflation will prompt the European Central Bank to extend its asset-purchase program.

Yields from Austria to Portugal dropped to the least on record. Spanish (GSPG10YR) securities gained as a report showed consumer prices fell more this month than economists forecast, raising concern deflation is taking hold. Separate data showed inflation in the German region of Bavaria stalled in November. Italy’s borrowing costs dropped to new lows as it auctioned five- and 10-year debt. ECB President Mario Draghi said in Helsinki today that discussions on stimulus include all assets.

“There’s low inflation and lots and lots of liquidity in the global system and there’s more coming next year,” said Allan von Mehren, chief analyst at Danske Bank A/S in Copenhagen. “Bund yields keep on grinding lower. The periphery has been doing pretty well too.”

German 10-year yields fell three basis points, or 0.03 percentage point, to 0.71 percent at 12:45 p.m. London time, and touched 0.708 percent, the least since Bloomberg began collecting the data in 1989. The 1 percent bund due in August 2024 rose 0.25, or 2.50 euros per 1,000-euro ($1,249) face amount, to 102.72.

Brent crude oil sank as much as 2.9 percent to $75.48 per barrel today in London, the lowest level since Sept. 7, 2010.

ECB ‘Unanimous’

“Should it become necessary to further address risks of too prolonged a period of low inflation, the Governing Council is unanimous in its commitment to using additional unconventional instruments within its mandate,” Draghi said.

Austria’s 10-year rate reached as low as 0.855 percent and Portugal (GSPT10YR)’s fell to 2.866 percent, also a record. Similar-maturity Spanish yields dropped as much as seven basis points to 1.907 percent, the lowest since Bloomberg began compiling the data in 1993.

Italy’s bonds rose as the nation sold 7 billion euros of debt due between 2019 and 2024. The 10-year yield declined as much as six basis points to an all-time low of 2.103 percent.

The Rome-based Treasury auctioned 2 billion euros of the bonds due in December 2024 at 2.08 percent today, down from 2.44 percent at a previous sale on Oct. 30. It also sold 3.5 billion euros of notes maturing in December 2019 at a record-low auction yield of 0.94 percent and floating-rate securities due in December 2020.

While their euro-area peers climbed, Greek bonds dropped for a third day as Finance Minister Gikas Hardouvelis said a short “technical” extension of the nation’s bailout is likely. Talks with its creditors over the loans in Paris showed progress and there are still issues unresolved, he said.

Greece’s 10-year yield rose 13 basis points today to 8.40 percent, after climbing 36 basis points in the previous two days.

German securities earned 1.5 percent in the past three months through yesterday, Bloomberg World Bond Indexes show. Italy’s returned 1.3 percent and Greece’s lost 17 percent.

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