LONDON: German bond yields dipped towards record lows on Wednesday as concerns over global growth spurred demand for safe-haven debt.
The euro zone's largest economy was at the centre of jitters about the region after poor industrial data this week and warnings from the IMF about a slower-than-expected recovery in domestic demand.
The German data has overshadowed worries that the United States will start to raise interest rates soon, which would push German bond yields higher, and has prompted investors to switch out of risky investments. On Wednesday, it sent European stocks to a 1-1/2 month low, in favour of top-rated bonds.
"There are a lot of worries about the macro picture, especially in the euro zone, and that is benefiting the bond market," said Jean-Francois Robin, head of strategy at Natixis.
"We are back to a traditional correlation when the equity market is going down, the bond market is going up."
German 10-year yields -- which have an inverse relationship to prices -- dropped 2 bps to 0.89 percent, just above record lows of 0.867 percent hit in August.
A prolonged downturn in Germany could weaken its opposition to fiscal easing, something that European Central Bank President Mario Draghi has said could help stimulate the economy in tandem with its own monetary policy.
The ECB's purchases of private assets mark a new policy phase that some investors hope will lead to sovereign bond purchases as seen in the U.S., Japan and Britain.
ECB vice president Vitor Constancio vowed on Wednesday to steer the bank's balance sheet "significantly higher", saying the stock of covered bonds and asset-backed securities eligible for purchase was 600 and 400 billion euros, respectively.
The rally in Bunds followed a sharp fall in U.S. Treasury yields on Tuesday, when long-dated yields hit their lowest levels since May 2013, despite the prospect of a rate rise.
Market watchers will be scouring minutes from the U.S. Federal Reserve's last meeting, due out later on Wednesday.
Franklin Templeton's Michael Hasenstab, one of the world's most influential fund managers said on Wednesday that long-term government bonds have become too expensive as the U.S. Fed contemplates raising rates.
MIXED AUCTIONS
At the auctions, the low yields of German bonds put off investors at a sale of five-year debt, resulting in its ninth technically uncovered auction this year.
Portugal, meanwhile, comfortably offloaded 1 billion euros of bonds due 2020 at the lowest yield ever of that maturity.
Peter Goves, a rates strategist at Citi, said the prospect of a rating upgrade from Fitch on Friday helped demand "at the margin". Fitch, which has the country's BB+ rating on a positive outlook, could become the first of the three main agencies to lift Portugal back to investment grade when it publishes its latest assessment on Friday.
Portugal's 10-year yields were 2 bps higher at 3.07 percent in the wake of the auction, as investors digested the new supply and against a broader risk-off tone.
Italian 10-year yields were also up 2 bps at 2.38 percent as the government faced a confidence vote over contested labour reform plans. Spanish equivalents were unchanged at 2.14 percent.
Against the risk-off trend, Greek bonds clawed back some of the ground they had lost of the last days amid concerns around the EU and IMF's latest review of Athens' bailout programme and a government confidence vote later this week. Ten-year yields were 2 bps lower at 6.69 percent.
Comments
Comments are closed for this article.