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German securities have rallied this year, with higher returns than stocks, as the ECB cut borrowing costs and introduced stimulus measures including targeted longer-term loans to banks to try to counter the threat of deflation. Now they’re extending gains with bonds from Austria to Finland as investors seek haven assets after Russia massed troops along its border with Ukraine and data points to slower growth in the 18-nation currency bloc.
“It’s going to be a very long time before the ECB starts raising rates and that scenario is being pushed further out with low inflation, weakness
in data and what’s going on in Ukraine,” said Allan von Mehren, chief analyst at Danske Bank A/S in Copenhagen. “People are moving their money into safer assets. Yields could stay negative if Ukraine continues to escalate.”
Benchmark 10-year yields fell one basis point, or 0.01 percentage point, to 1.09 percent as of 10:08 a.m. London time after touching 1.078 percent, the lowest level since Bloomberg began tracking the data in 1989. The 1.5 percent bund due in May 2024 rose 0.075, or 0.075 euros per 1,000-euro ($1,338) face amount, to 103.745.
The two-year note rate was little changed at 0.004 percent after falling to minus 0.004 percent, the least since May 24, 2013. A negative yield means investors who hold a security until it matures will receive less than they paid to buy it. The ECB charges banks 0.1 percent to deposit cash with it.
Economic Data
This month’s ECB decision follows reports yesterday that showed Italy unexpectedly returned to recession and German factory orders dropped the most since 2011, as slowing global growth and rising tensions with Russia over Ukraine threaten the euro area’s recovery.A report today showed German industrial output increased less in June than economists forecast. Production rose 0.3 percent from May, when it declined a revised 1.7 percent. The median estimate in a Bloomberg survey of analysts was for a reading of 1.2 percent.
ECB officials led by President Mario Draghi are forecast by economists in Bloomberg News surveys to keep the refinancing rate at a record-low 0.15 percent and the deposit rate at minus 0.1 percent.
“The ECB will be pleased by lower bund yields as it reduces the needs of a quantitative-easing program,” Alessandro Giansanti, a fixed-income strategist at ING Groep NV in Amsterdam, said yesterday. “The ECB are likely to keep rates on hold and to maintain the same language. There have been some improvements in the lending survey data which will raise the expectations among ECB members for a successful TLTRO program.”
Yields Slide
The yield on Austrian, Dutch and Finnish 10-year bonds all dropped to the lowest on record today. Austria’s 10-year rate declined to 1.346 percent, Dutch yields slid to as low as 1.28 percent and Finland’s fell to 1.225 percent.Yields on benchmark German 10-year bunds were little changed at 1.29 percent following the ECB’s previous monetary-policy decision on July 3, when Draghi said he’ll keep interest rates low as officials try to revive the economy. The central bank left policy unchanged last month, after introducing its unprecedented stimulus package in June.
Spain sold a combined 3.1 billion euros of debt due in January 2020 and October 2024. The Madrid-based Treasury auctioned 2 billion euros of 10-year bonds at an average yield of 2.686 percent, the lowest on record. The rate on Spanish securities due in April 2024 fell three basis points at 2.55 percent today.
The Stoxx Europe 600 Index of shares rose 2.9 percent for the year, including reinvested dividends. German securities are beating that, having returned 6 percent this year through yesterday, Bloomberg World Bond Indexes show. Italy’s earned 9.5 percent and Spain’s gained 10 perc
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