Austrian to Dutch Bonds Fall on Fed speech

Government bonds from Austria to the Netherlands fell, pushing 10-year yields up from record lows, as global equities rallied on the Federal Reserve’s pledge to be patient on the timing of rate increases.

Benchmark German (GDBR10) 10-year bunds snapped an eight-day advance, the longest run since October 2013. Spanish bonds rose after the nation’s borrowing costs dropped to a record at a sale of bonds due in October 2024 today. Greece’s three-year notes advanced even after the nation moved a step closer to early elections.

“Risk appetite has improved somewhat and the flight-to-quality trade has unwound somewhat,” said Nick Stamenkovic, a fixed-income strategist at broker RIA Capital Markets Ltd. in Edinburgh. “With liquidity drying up, investors are taking the opportunity to take a pause. But I don’t think the bull run in core markets is done yet.”

Austria’s 10-year yield rose two basis points, or 0.02 percentage point, to 0.78 percent at 4:57 p.m. London time. The rate earlier dropped as low as 0.728 percent, the least since Bloomberg began collecting the data in 1993. The 1.65 percent bond due in October 2024 fell 0.205, or 2.05 euros per 1,000-euro ($1,229) face amount, to 108.235. The Euro Stoxx 50 index was 3.3 percent higher, with all 50 members gaining.

Belgium’s 10-year yield touched a record-low 0.837 percent, before rising to 0.89 percent, up three basis points, and that of the Netherlands (GNTH10YR) dropped to 0.711 percent, then climbed to 0.76 percent. The rate on similar-maturity Italian debt fell to as low as 1.918 percent.

Germany’s Yield

German 10-year yields rose two basis points to 0.61 percent after dropping to a record 0.565 percent yesterday. The rate on two-year notes was little changed at minus 0.078 percent, having fallen below minus 0.09 percent for the first time since September.

A negative yield means investors buying the securities will get less back than they paid when the debt matures.

Federal Reserve Chair Janet Yellen said yesterday the U.S. central bank is unlikely to raise interest rates before the end of April and borrowing costs will remain low for a “long time” after liftoff. Treasuries fell, with 10-year note yields rising the most in 17 months.

Spain’s Treasury allotted 1.12 billion euros of 10-year bonds at an average yield of 1.731 percent today, down from 1.84 percent at a previous auction on Dec. 4 and the lowest on record. It also sold debt due in July 2019 and October 2023.

Greek Prime Minister Antonis Samaras yesterday failed to gather enough support for his nominee in a parliamentary vote for a new head of state, pushing him closer to having to dissolve parliament.

Germany’s lower house of parliament today authorized Finance Minister Wolfgang Schaeuble to give initial backing in the European Stability Mechanism for a precautionary credit line for Greece provided the country meets policy requirements negotiated with its creditors.

Greece’s three-year yield dropped 47 basis points to 9.88 percent and earlier reached as high as 10.93 percent. The rate on 10-year bonds declined 15 basis points to 8.61 percent.

(Source: Bloomberg)